Sterling slips ahead of Bank of England decision; Middle East in focus

Pound Weakens Ahead of Bank of England's Rate Decision Amid Middle East Tensions

LONDON (Reuters) -Sterling slipped versus a stronger dollar on Thursday ahead of the Bank of England's policy decision, with no change to rates the widely expected outcome, while investor sentiment remained fragile given the flaring conflict in the Middle East.

At 0618 GMT the pound was 0.24% lower at $1.339 and unchanged against the euro, which held at 85.515 pence..

The dollar strengthened after the Federal Reserve held rates steady as expected on Wednesday, and amid a surge in safe haven demand as a conflict in the Middle East continues and President Donald Trump weighs U.S. involvement.

Traders are betting the BoE will follow suit in keeping rates steady on Thursday, even as the UK's economic growth is faltering and inflation cooled slightly in May.

The chance of no change stands at 96% with a tiny chance of a 25 basis point rate cut. Attention will be on the voting, after last month's surprise three-way split among policymakers.

A Reuters poll last week of 60 economists found that all of them expect the BoE to keep rates at 4.25% in June and almost all forecast a quarter-point rate cut in August.

A jump in the price of oil during the ongoing Israel-Iran conflict presents another problem for the central bank to grapple with, as it could keep inflation higher.

The pound has slipped more than 1% since last Thursday, but it remains 7% higher against the greenback in 2025, helped by a rush away from U.S. assets spurred by heightened trade uncertainty in light of Trump's tariffs.

Also helping out is the fact that the UK is the only country to have struck a trade deal with the United States. Trump and British Prime Minister Keir Starmer finalised the deal at the G7 summit this week.

(Reporting by Lucy Raitano; Editing by Amanda Cooper and Jamie Freed)