UBS warns pound vulnerable as Middle East tensions rise

UBS has warned that the British pound could become vulnerable as geopolitical tensions in the Middle East intensify, highlighting the potential impact of higher energy prices on the UK economy.

According to UBS analysts, sterling has outperformed the euro since the conflict began, partly supported by movements in short‑term UK interest rates. However, the bank cautioned that the currency’s strength may not be sustainable if the geopolitical situation leads to a prolonged energy shock.

The analysts noted that rising oil and energy prices are the main transmission channel through which Middle East conflicts affect global markets. For energy‑importing economies such as the United Kingdom, higher energy costs can widen external imbalances and weigh on economic growth, increasing downside risks for the pound.

UBS also pointed out that a sustained increase in energy prices could complicate the outlook for the Bank of England. If higher costs feed back into inflation, monetary policy expectations could shift, potentially adding volatility to currency markets and leaving sterling exposed to further pressure.