Sterling inched higher against the US dollar even as fresh economic data showed the UK economy barely expanded at the end of 2025 and political tensions continued to cast a shadow over investor sentiment.
The pound rose about 0.1 percent to trade near 1.36 dollars, supported in part by a softer dollar. Moves were modest, however, as markets absorbed figures indicating that Britain’s economy grew just 0.1 percent in the fourth quarter, matching the previous quarter’s pace but falling short of expectations.
The data underscored the fragile nature of the UK’s recovery. Output has struggled to gain momentum amid tight financial conditions, elevated borrowing costs and subdued consumer demand. While the latest reading avoided a contraction, the lack of acceleration reinforces concerns about growth prospects heading into 2026.
Against the euro, sterling was little changed, hovering around 87 pence. Earlier in the week, the single currency had strengthened after speculation about political instability in the United Kingdom briefly intensified. Although immediate pressure on the prime minister has eased following public reassurances about his leadership, analysts say the political backdrop remains a source of caution for investors.
Market participants note that currency movements are being driven as much by dollar dynamics as by domestic UK factors. The greenback has softened slightly in recent sessions as traders reassess the outlook for US interest rates in light of mixed economic data. That broader dollar weakness has helped limit downside pressure on sterling.
Still, political uncertainty in Britain could continue to weigh on the currency. Ongoing debates within the government and speculation about leadership stability have added another layer of risk at a time when economic growth is already under strain. Analysts suggest that renewed headlines about internal party divisions or policy disputes could quickly dent confidence.
Some economists argue that the latest growth figures may not fully capture current economic conditions, given their backward looking nature and typical quarterly volatility. However, the immediate impact is likely to be more about perception than detail, as headlines emphasizing weaker than expected expansion may influence market sentiment.
Looking ahead, investors will be closely monitoring upcoming inflation data and signals from the Bank of England. Policymakers face a delicate balance between supporting growth and containing price pressures. Any indication of a shift in rate expectations could drive sharper moves in sterling.
For now, the pound’s modest gains reflect a temporary alignment of softer dollar conditions and contained political concerns. But with economic growth sluggish and the domestic political environment unsettled, sterling’s near term trajectory remains closely tied to both macroeconomic data and developments in Westminster.
