Sterling slipped to around $1.32 at the start of October, approaching a three-month low, after losing 2% against the US dollar in September. The decline came as rising oil prices stoked inflation concerns, pushed bond yields higher, and darkened the UK’s growth outlook. Oil gained as investors weighed increased energy shipments from the Middle East against the unresolved US–Iran standoff.
Markets now expect the Bank of England to tighten policy more gradually than the Federal Reserve. LSEG data indicate investors are pricing in four BoE rate increases by July 2027, with the first hike anticipated in November. Several officials, including Governor Andrew Bailey, have signaled a greater willingness to raise rates as higher energy costs increase the risk that inflation will remain above target. In the US, futures markets still assign nearly a 40% probability to a rate hike this month.
Meanwhile, investors reacted positively to Prime Minister Andy Burnham’s comments advocating closer UK–EU relations, including the possibility of revisiting EU membership after the next general election.
