Published by Global Banking & Finance Review®
Posted on March 5, 2026
3 min readLast updated: April 1, 2026
Add as preferred source on GoogleSterling resumed its decline on March 5, 2026, amid intensifying Middle East conflict and rising oil prices, fueling demand for safe-haven assets and prompting caution over UK rate cuts amid sluggish economic growth.
By Niket Nishant
LONDON, March 5 (Reuters) - The British pound resumed its fall on Thursday, following a one-day reprieve, as the deepening conflict in the Middle East kept investors nervous and fuelled a flight to safe-haven alternatives.
With oil prices rising for a fifth consecutive day, investors continued selling currencies of economies reliant on energy imports.
Sterling dipped 0.1% against the dollar to $1.3362, and was a touch lower versus the euro at 86.91 pence. The euro and the yen also sold off against the dollar, which was gaining on safe-haven demand.
"There's a lot of moving parts here, and there's a lot of uncertainty, and that favours a stronger dollar," said Nick Rees, head of macro research at Monex.
Traders have scaled back expectations for a Bank of England rate cut, with LSEG data showing just a 22% chance of easing this month, down from 75% on Friday.
"Unless tensions in the Middle East swiftly de-escalate, we doubt the Bank will cut rates on March 19 as we previously thought," said Ruth Gregory, deputy chief UK economist at Capital Economics.
"The risk is that higher inflation delays rate cuts this year or prevents rates from being cut at all."
DOMESTIC FACTORS WEIGH
Domestic factors have also soured sentiment towards the pound, as data last month showed sluggish economic growth in the UK in the final quarter of last year.
Political pressures are in focus after Prime Minister Keir Starmer's Labour Party lost a local election in Manchester. He has also faced criticism over his stance on the U.S.-Israel war with Iran.
Earlier this week, British finance minister Rachel Reeves delivered a budget update that showed that inflation and borrowing would be lower than expected.
However, she also forecast slower economic growth for this year, citing the latest projections from the Office for Budget Responsibility.
"Much of the good news centred on the country's lower borrowing costs. But crucially the OBR projections do not take into account any further instability in the Middle East," said Mark Preskett, senior portfolio manager at Morningstar Wealth.
"Britain remains sensitive to energy-induced inflation, given our reliance on oil and gas imports."
(Reporting by Niket Nishant; Editing by Kirsten Donovan)
The pound is falling due to increased demand for safe-haven currencies amid rising tensions in the Middle East and higher oil prices.
The conflict has raised uncertainty, driving investors toward safe-haven assets like the US dollar, and pressuring currencies of energy-importing economies such as the UK.
Traders have reduced expectations for a near-term rate cut, with only a 22% chance of easing this month according to LSEG data.
Weak domestic growth, political pressures, and inflation sensitivity due to energy reliance are weighing on the pound’s outlook.
Rising oil prices increase costs for energy-importing countries like the UK, contributing to inflation and putting downward pressure on sterling.
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