The British pound fell back below $1.34 by the end of a turbulent week, as investors sought safety in the US dollar amid escalating concerns over inflation fueled by the Iran conflict’s energy price surge. Brent crude and European gas prices hit multi-year highs, amplifying pressure on the UK economy and reinforcing expectations of three Bank of England rate hikes in 2026. The BoE unanimously held rates at 3.75% on Thursday while cautioning that the Middle East crisis could push global energy and commodity costs even higher. Policymakers now project a near-term CPI inflation rebound, reversing recent progress in cooling domestic price and wage growth. Adding to economic strains, UK public sector borrowing jumped to GBP 14.3 billion in February 2026, up from GBP 12.1 billion a year ago and exceeding consensus estimates of GBP 8.5 billion. The figure represents the second-highest February borrowing since records began, surpassed only by 2021.