Recent analyses from ING and MUFG highlight mounting risks to the British Pound (GBP) stemming from energy market vulnerabilities and shifting central bank expectations. ING’s Francesco Pesole notes that EUR/GBP volatility has been driven by changing rate differentials, with the Bank of England (BoE) seen as more vulnerable than the European Central Bank (ECB) due to its readiness to cut rates before the war and the UK’s significant growth hit from the energy shock, the largest among OECD countries [1]. ING maintains an upside bias for EUR/GBP, targeting 0.8800, and expects that BoE tightening will be fully priced out [1].
MUFG’s Derek Halpenny underscores that the Pound’s strong performance in March is at risk, primarily due to the UK’s rising energy import dependency, shrinking refinery capacity, and potential refined fuel shortages. The UK’s energy import dependency has reached close to 45%, with oil and gas comprising about 90% of imports. The country’s refinery capacity has declined from 18 refineries in the early 1980s to just 4 currently. Prices for jet fuel have doubled during the current energy shock, diesel prices have risen by close to 25%, and petrol prices by about 13%, according to RAC Fuel Watch. The CEO of Shell has warned that Europe could face refined fuel shortages later this month [2].
Halpenny suggests that risk aversion may increase as global growth fears rise, making the UK more vulnerable to a larger terms-of-trade hit and potential fuel shortages. This could lead to a reversal of the Pound’s recent resilience. He also notes that if optimism leads to sharp falls in energy prices, front-end yields could decline, reinforcing a correction for the Pound [2].
Both ING and MUFG point to the UK’s heightened exposure to energy shocks and dovish central bank repricing as key factors threatening GBP stability. ING’s upside bias for EUR/GBP and MUFG’s warning of a potential reversal in Sterling’s performance underscore the market’s concern over the UK’s economic outlook and currency trajectory [1][2].
CONCLUSION
Both ING and MUFG highlight significant downside risks for the British Pound due to energy market vulnerabilities and expectations of a dovish shift by the Bank of England. The combination of rising energy import dependency, shrinking refinery capacity, and potential fuel shortages is seen as undermining GBP resilience. Market participants should be alert to further volatility and potential corrections in Sterling as these risks unfold.