The British pound extended its decline against the dollar on Friday but was poised to end the week higher, a day after the Bank of England kept interest rates unchanged and raised concerns about a rise in global trade tensions.
Sterling was down 0.2% at $1.29405 after hitting as high as $1.301 earlier this week. It was on track for its third-consecutive week of gains.
Against the euro, the British currency was little changed at 83.695 pence to the common currency.
On Thursday, BoE governor Andrew Bailey, echoing other central bankers around the world, highlighted the sudden lack of visibility about the outlook due largely to U.S. President Donald Trump’s tariffs against global trading partners.
“There’s just a general sense of caution. We don’t really know what are the implications of the trade war on growth and inflation,” said Kenneth Broux, head of corporate research FX and rates at Societe Generale.
Sterling losses some ground against dollar
Even though Britain has so far escaped most of the tariff rhetoric from Trump, the next round of U.S. reciprocal tariffs in early April and their potential implications and spillover to the UK economy remain to be seen, Broux said.
Upcoming UK inflation and wage growth data are the key things to watch, Broux said.
The UK economy is also at risk of rising inflation as a tax hike for employers kicks in next month.
The BoE predicted a peak in British inflation of 3.75% in the third quarter of this year, up slightly from a February estimate of 3.7%. It nudged up its estimate for economic growth in the first three months of 2025 to 0.25% from 0.1%.
Meanwhile, data on Friday showed that Britain borrowed a lot more than expected last month, underlining the scale of the challenge facing finance minister Rachel Reeves, who is expected to announce cuts to her spending plans next week.
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