Finance
Pound Dented by Dollar Strength, Signs of Mounting UK Inflation Pressures
Published by Global Banking & Finance Review®
Posted on April 23, 2026
3 min readLast updated: April 23, 2026
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The pound weakened due to safe‑haven dollar flows amid Middle East tensions and surging UK input costs. PMI surveys show record monthly cost increases and plunging manufacturing confidence, while markets now price a 75% likelihood of a BoE rate hike by June. Borrowing for the full year through March
UK Pound Weakened by Dollar Strength and Growing Inflation Pressures
Market Reactions and Economic Indicators
By Amanda Cooper
Safe-Haven Flows and Currency Movements
LONDON, April 23 (Reuters) - The pound eased against the dollar on Thursday, largely as a result of the U.S. currency drawing in safe-haven flows, as investors remained nervous over a fragile ceasefire in the Middle East, but also on the back of more evidence of the pain coming for the UK economy from rising energy costs.
Impact of Rising Energy Costs
A survey of UK business activity showed companies reported a record jump in costs in April, while a separate survey of confidence in the manufacturing sector showed deep pessimism and the steepest rise in costs since records began for that report in 1975.
Bank of England Rate Hike Expectations
Money markets also shifted to show traders now see a 75% chance of a rate hike from the Bank of England by June, compared with a 50/50 chance at the start of the week.
Sterling and Euro Performance
Sterling, which has returned to where it was in late February, was a touch lower on the day at $1.349, set for a 0.17% decline for the week. It strengthened against the euro, which dipped 0.14% to 86.59 pence.
Inflation and Cost Pressures
Business Surveys Highlight Rising Costs
The share of British companies reporting rising costs surged by a record amount this month, a clear warning of higher inflation ahead as fallout from the Iran war spreads through the economy, a survey showed on Thursday.
Input Price Index and Historical Comparisons
Data company S&P Global said its gauge of input prices in this month's Flash UK Composite Purchasing Managers' Index showed the biggest increase on the month since records began 28 years ago, hitting its highest level since a bout of double-digit inflation in late 2022. Overall business activity, however improved by more than any economist polled by Reuters had expected, according to the survey.
Manufacturing Sector Pessimism
A separate report from the Confederation of British Industry on Thursday showed domestic manufacturers have turned their most pessimistic since the start of the COVID-19 pandemic. The survey's gauge of expected prices jumped to +32 from +12 in March, representing the biggest month-to-month increase since records began in 1975.
Analyst Commentary
"To be sure, the outlook remains murky. While we remain sanguine about the prospect of second-round effects, indirect effects remain worrying. Higher energy prices aren’t the only thing consumers will have to worry about. Food prices are likely to rise. Higher shipping costs could also push up core goods prices," Deutsche Bank UK economist Sanjay Raja said.
Raja added that, for now, this would do little to push the BoE into any decisions on rate rises.
UK Budget Deficit Update
Britain's budget deficit for the last financial year narrowed to a six-year low as a percentage of economic output although borrowing for March alone exceeded forecasts, according to the Office for National Statistics on Thursday.
(Reporting by Amanda Cooper; Editing by Louise Heavens)
Key Takeaways
- •UK businesses reported the sharpest monthly rise in input costs since PMI records began, signalling growing inflationary pressures amid the Iran‑Middle East conflict (globalbankingandfinance.com).
- •Manufacturing sentiment sank to the worst since the start of the pandemic; the CBI’s expected‑prices index jumped to +32—the biggest month‑on‑month rise since 1975 (investing.com).
- •Money markets now assign a ~75% chance of a Bank of England rate hike by June, up from ~50% earlier, reflecting growing monetary tightening expectations (investing.com).
- •UK public sector net borrowing for the 2025‑26 financial year stood at £132 billion, down from £151.9 billion in 2024‑25 and marginally below OBR forecasts; as a share of GDP it hit its lowest since 2020, though March borrowing alone exceeded expectations (ons.gov.uk).
References
Frequently Asked Questions about Pound dented by dollar strength, signs of mounting UK inflation pressures
1Why did the pound weaken against the dollar?
The pound fell due to safe-haven flows into the U.S. dollar and rising UK inflation pressures from higher energy costs.
2What did UK business surveys reveal about inflation?
Surveys showed British companies reported record cost increases, signaling higher inflation ahead.
3Is the Bank of England likely to raise interest rates soon?
Money markets now see a 75% chance of a rate hike by June, up from a 50/50 chance earlier in the week.
4How did the UK manufacturing sector's outlook change?
The CBI survey showed UK manufacturers are the most pessimistic since the start of the COVID-19 pandemic.
5What other economic pressures were highlighted?
Higher food and shipping costs, as well as rising energy prices, are expected to further push up inflation.
