GBP/USD Forecast: Pound Sterling Falls as UK Services Sector Contracts

Modified: Monday, 25 May 2026 07:41 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Falls as UK Services Sector Contracts

The Pound to Dollar exchange rate (GBP/USD) slipped back below 1.3400 after disappointing UK business confidence data reinforced concerns that higher energy costs are beginning to weigh heavily on economic activity.

Sterling struggled to gain traction as investors weighed evidence of slowing UK growth against persistent inflation pressures, while the US Dollar remained supported by elevated Treasury yields and expectations that the Federal Reserve may keep policy tighter for longer.

GBP/USD Forecasts: Dip Below 1.34

The Pound to Dollar (GBP/USD) exchange rate stalled just above 1.3450 and edged lower and lost ground after weaker than expected UK data and a reluctance to sell the dollar with GBP/USD trading below 1.3400.

According to Scotiabank; “We look to a near-term range bound between 1.3380 and 1.3480.”

UoB sees limited upside and does not expect a challenge on 1.3530.

Oil prices dipped sharply on Wednesday amid hopes for a US-Iran peace deal, but there were fresh doubts on Thursday with crude posting renewed gains as Iran stated that enriched uranium must stay in Iran.

ING commented; “For the second time this May, markets are trying to trade a US-Iran peace deal after President Trump said negotiations were in their "final stages". Conviction is lower this time. Rhetoric from both sides remains belligerent, and markets are more hesitant to chase optimistic headlines after earlier disappointments.”

The UK PMI services-sector index dipped sharply to a 5-year low of 47.9 in May from 52.7 the previous month.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; "Just as the economy shows signs of sinking into decline, prices are surging higher to herald a marked upturn in inflation in the months ahead as these costs pass through to consumers.”

He added; "This combination of a faltering economy and spiking price pressures leaves the Bank of England in a major quandary, facing the growing need to hike rates to help contain inflation but thereby adding to recession risks.”

The PMI manufacturing index held steady, but the CBI industrial orders survey registered a further deterioration to -41 from -38 previously.”

CBI Senior Economist Cameron Martin commented; “Manufacturers remain under significant pressure, with order books now at their weakest since 2020 and output continuing to fall. A growing share of firms expect to raise prices over the summer, pointing to mounting cost pressures across the sector.
Bank of England external member Taylor played down the need for higher interest rates.
The US PMI services-sector index declined only marginally to 50.9 from 51.0 previously.

Service sector optimism, however, fell to its weakest since April 2025, and second lowest since October 2022 with growing concern over the outlook due to surging prices.

Average prices charged for goods and services rose at the fastest rate since August 2022which will cause further concern within the Federal Reserve.

ING commented; “The macro background is also making it harder to aggressively bet on the USD downside. The FOMC April minutes, published yesterday, were hawkish, with "many" members asking to signal that the next move could be a hike. That translates into a greater risk that Treasury yields will be stickier on the downside than they have been on the upside.”

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TAGS: Pound Dollar Forecasts