Pound dips amid weaker retail sales while Middle East war ramps up inflation fears

The pound lost ground against the dollar and euro on Friday morning, dipping following a lacklustre set of retail sales data and mounting fears about the impact of energy price inflation on the UK economy.

Retail sales rose by 0.7% in the three months to February, compared with the three months to November 2025, the Office for National Statistics said.

The rise was mainly due to better sales for non-store retailers in the three months to February 2026, following a weaker November 2025, as well as strong artwork sales volumes in January 2026.

“Poor weather may have played a role in February’s weaker retail sales, but the bigger issue is that underlying demand still looks fragile,” said Sergey Kondratyuk, Partner at McKinsey & Company. “Our latest consumer research * shows 52% of UK consumers continue to cite inflation as a top concern, and only 23% are optimistic about economic conditions.”

“The pressure is also clear in planned spending. In the UK, 50% of consumers say they expect to spend less on furniture over the next three months, versus just 15% who expect to spend more, with similar patterns across apparel and home electronics.

“That suggests this is about more than a one-month weather effect, but instead a broad-based volume recovery still has not emerged.”