UK pound sterling exchange rate

The nominal effective exchange rate of the British pound sterling is projected to be £0.76 in 2025, reflecting a moderate appreciation over the US dollar compared with the prior year. The pound is expected to benefit this year from a relatively weaker US dollar, stemming from ongoing policy moves by the US Federal Reserve and improved UK macroeconomic stability. Inflationary pressures in the UK appear to be easing following a period of central bank rate increases, though lingering upward momentum in energy prices and global instability, sparked in part by the Russian-Ukraine conflict, are still impacting investor sentiment and causing some volatility in exchange rates.

The value of the pound has experienced marked fluctuations amid a range of macroeconomic shocks and policy changes. The pound appreciated in 2021as the UK's vaccine rollout was swift relative to other developed markets and economic reopening caused optimism among global investors. Persistent inflation then drove the Bank of England to adopt an aggressive monetary policy stance in 2022, lifting rates as energy prices climbed in response to geopolitical tensions in Eastern Europe. That same conflict adversely influenced investor risk appetite, with volatility and uncertainty boosting demand for safe-haven currencies, such as the US dollar, and exerting selling pressure on the pound through rising global gas and oil prices. After peaking in 2022 at £0.81, the exchange rate moderated in 2023 and 2024 due to an improving inflation outlook and gradual stabilization of the UK's political and trade environment post-Brexit.

Despite these shifts, unresolved consequences of Brexit negotiations continued to weigh on the pound, with periodic uncertainty over trade arrangements and regulatory frameworks dampening demand for sterling. The COVID-19 pandemic in 2020 initially triggered a significant outflow from the pound into safe-haven assets, but the currency began to recover as effective vaccine distribution and reopening measures signaled a comparably strong UK recovery. The overall period is marked by a 0.5% decline in the average annual exchange rate, highlighting ongoing headwinds from global risk aversion, shifts in monetary policy, and energy market disruption, with the pound only partially recovering its strength by 2025.