* IMF cuts UK growth forecast to 0.8% for 2026, citing
Iran war impact
* UK bond yields rise sharply as gas prices surge,
raising borrowing costs
* Bank of England policymakers warn of inflation risks
from energy price spike
LONDON, April 15 (Reuters) – The pound on Wednesday took
a breather from its longest stretch of gains in a year, dipping
against the dollar after a swell of investor optimism over a
possible resolution to the Iran war pushed the safe-haven
greenback to six-week lows.
Sterling’s strength could prove short-lived, however, given
how the war has complicated the outlook for UK growth and
inflation, analysts said.
Britain suffered the sharpest cut among large rich countries
to economic growth forecasts by the International Monetary Fund
due largely to the Iran war. The IMF said on Tuesday that
Britain’s economy was now on course to grow by only 0.8% in
2026, down from a previous projection of 1.3%, the biggest
downgrade made by the Fund for any Group of Seven nation.
Sterling was last steady at $1.357, having staged a
near-unbroken 3% rally since hitting four-month lows at the end
of March. The pound had gained for seven days in a row, the
longest such stretch since last April’s 10-day run.
Because of the UK’s dependence on imports of natural gas in
particular, the price of which has shot up 40% since the war
started, British government borrowing costs have risen in
tandem, making its two-year bonds the
worst-performing of any major economy, with a rise of nearly 70
basis points since late February to 4.2%.
As such, traders rushed to price in the prospect of Bank of
England rate rises this year. But, as optimism grows for some
kind of resolution to the worst of the disruption to oil flows
through the Strait of Hormuz, some of that pricing has
moderated, paving the way for sterling losses, analysts said.
“All in all, the latest developments keep us confident with
our call that front-end rates have further to fall in the UK
than the euro zone and that should offer lasting support to
euro/sterling beyond the near-term,” ING strategist Francesco
Pesole said in a note.
“…The pair is suffering a bit from improved risk
sentiment, but rate differentials will return as primary drivers
once the dust has settled.”
The euro is still showing a near-1% loss against
the pound since the start of the war, and on Wednesday was flat
at 86.94 pence.
Bank of England interest rate-setter Megan Greene, among the
policymakers most worried about price pressures prior to the
war, said on Tuesday it could take months to see how much
long-lasting damage is caused to Britain’s economy by the energy
price spike and that upside risks to inflation were “paramount”
to her thinking.
“We can’t wait to have all the definitive data showing that
there are second-round effects because then we will be too late
already, so it will have to be a judgment call,” she said.
