Market News

The pound ticked lower against the dollar and euro on Wednesday morning as investors assess the potential economic damage war in the Middle East could cause to the UK.

The moves follow a report by the OECD that forecasts the UK is facing the biggest hit to growth from the Iran war out of the G20 major economies.

Growth forecasts this year by the body have been revised down from 1.2% to 0.7%, with inflation also tipped to be higher than expected.

“The sharp jump in oil prices and disruption to shipping routes threatens to feed into higher costs for consumers and businesses. The longer the Middle East crisis lasts, the bigger the potential economic hit,” said Dan Coatsworth, head of markets at AJ Bell.

“The UK’s GDP is already moving at a lacklustre pace as the government works through a plan of public finance strengthening first and economic growth second. The last thing chancellor Rachel Reeves wants is for her growth plan to be derailed, but it’s clear that she needs to consider such a scenario.”

Earlier this week, the swaps market upped bets on interest rate increases to try to tame inflation. Four quarter-point interest rate rises are now expected by Threadneedle Street in 2026.

Globally, the OECD left growth forecasts unchanged for the year at 2.9%, but it predicts inflation across the G20 countries will be 4%, sharply up from its previous forecast of 2.8%.

Sterling was 0.1% lower against the dollar by late-morning — trading around the $1.335 mark. The pound also fell 0.1% against the euro (GBPEUR=X) to 1.155.

The dollar index (^NYICDX), which tracks the greenback against a basket of six currencies, gained about 0.5%. Investors tend to favour haven assets and strong currencies in times of global economic distress.