GBP/USD Weakens as Stronger Dollar and UK Growth Concerns Weigh on Sterling

Key Takeaways:

• GBP/USD declines as US dollar strengthens on macro and geopolitical factors

• UK growth outlook weakens despite slightly better GDP data

• Rising unemployment signals deterioration in UK labour market

Market Summary:

The GBP/USD pair continued to edge lower, pressured by a stronger US dollar and growing concerns over the UKs economic outlook.

While recent UK GDP data showed a slight upside surprise, expanding by 0.5% in February, the improvement is largely viewed as backward-looking, given the evolving macro environment driven by geopolitical tensions. Market participants remain cautious, as more recent developments — particularly in the Middle East — are expected to weigh on future economic performance.

The UK labour market is also showing signs of deterioration, with the unemployment rate rising above 5%, reinforcing concerns over weakening domestic conditions. Adding to this, the International Monetary Fund has warned that the UK could be among the hardest-hit major economies from the ongoing Iran conflict. The IMF has downgraded its UK growth forecast to 0.8% for 2026, down from a previous estimate of 1.3%.

At the same time, rising oil prices and energy market instability — driven by ongoing U.S.–Iran tensions — are further weighing on the UK economy. As a net energy importer, the UK is particularly vulnerable to supply-side shocks, with higher energy costs likely to pressure both consumers and businesses.

Against this backdrop, the US dollar has remained resilient, supported by elevated Treasury yields and safe-haven demand amid geopolitical uncertainty. This divergence in macro fundamentals has continued to put downward pressure on GBP/USD.