Pound Plummets Amid Middle East Conflict and Inflation Fears

The British pound hit a three-month low on Tuesday, driven down by the escalating conflict in the Middle East. The resulting rise in oil prices has reignited inflation concerns and led traders to adjust their rate-cut expectations.

Against the dollar, the pound dipped 0.65% to $1.3319, while remaining stable against the euro at 87.14 pence. The currency has already been under pressure due to economic uncertainties and domestic political issues. Addressing these challenges, finance minister Rachel Reeves announced a projected 1.1% growth for the UK economy this year, as reflected in the Office for Budget Responsibility's latest figures.

Traders now see just a 22% chance of a central bank rate cut this month, down from 75% last week. Meanwhile, British bond yields have risen for two days straight. The global turmoil heightens the fragility of UK assets, compounded by Labour's loss in a Manchester election and subsequent political unease surrounding Prime Minister Keir Starmer.