Why is the Bank of England expected to delay interest rate hikes amid the Middle East conflict?

Investors have lowered expectations for near-term Bank of England rate hikes due to uncertainty from the Middle East conflict, with money market futures not fully pricing in a quarter-point hike until the September meeting and only just under two hikes priced by year-end; as macro strategist Gustav Helgesson noted, the market has given the BoE a window to wait — provided the Strait of Hormuz reopens soon — and that the BoE could 'sit this out' if underlying inflation shows no big surprises, which would weaken sterling from a rate-differential perspective.

How does the Middle East conflict affect the pound’s performance against the dollar and euro?

The pound was little changed against both the dollar and euro on Wednesday — down 0.1% to $1.3447 and steady at 86.34 pence per euro — as investors remained focused on the Middle East conflict and its implications for monetary policy; heightened hostilities, including an Iranian missile attack damaging Kuwait’s airport and U.S. strikes near the Strait of Hormuz, pushed up oil prices, and because Britain relies more heavily on imported energy than the U.S., it is more exposed to rising global fuel costs, which weigh on sterling.

Sterling Struggles for Direction as Iran Talks at Impasse

Jun 3, 2026

Amidst stalled Iran peace talks and renewed hostilities, Brent crude oil prices surged to a week-high, increasing energy costs for import-reliant economies like Britain. Consequently, investors adjusted expectations for Bank of England rate hikes amidst inflation concerns.

reuters

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