Pound to Euro Falls on Bank of England Split

– Written by


David Woodsmith

STORY LINK Pound to Euro Falls on Bank of England Split

The Pound to Euro exchange rate (GBP/EUR) slid sharply on Thursday, falling to a nine-day low as investors reacted to the latest interest rate decisions from the Bank of England (BoE) and the European Central Bank (ECB).

At the time of writing, GBP/EUR was trading near €1.1470, down almost 0.8% on the day.

Sterling came under heavy pressure after the Bank of England revealed a far more divided Monetary Policy Committee than markets had anticipated.

Ahead of the meeting, economists had widely expected a comfortable 7–2 vote in favour of keeping interest rates unchanged, particularly with UK inflation still running well above target at 3.4%.

Instead, policymakers delivered a razor-thin outcome, with four of the nine MPC members voting for an immediate rate cut. Governor Andrew Bailey was forced to cast the deciding vote to maintain current borrowing costs.

The unexpectedly close split caught traders off guard and prompted a swift reassessment of the UK interest rate outlook. Markets moved to price in earlier and potentially faster rate cuts, dragging the Pound sharply lower.

The Euro, by contrast, found modest support after the European Central Bank delivered a comparatively balanced policy update.

The ECB also left interest rates unchanged, but officials struck a more even-handed tone in their assessment of risks. While acknowledging that the Euro’s recent strength could weigh on inflation, policymakers simultaneously flagged upside risks to price growth.

By framing these pressures as broadly offsetting, the ECB avoided signalling an imminent shift towards looser policy, allowing the single currency to hold its ground against a weakening Pound.

GBP/EUR Forecast: German Data and UK Politics in Focus

Looking ahead, the Euro may struggle to find clear direction into the end of the week as investors digest a mixed set of economic indicators from Germany.

Trade data is expected to show a rebound in December exports, but this is likely to be offset by forecasts for a contraction in industrial production over the same period, potentially limiting EUR momentum.

For Sterling, the absence of UK economic data leaves the Pound vulnerable to political developments.

Prime Minister Keir Starmer is facing renewed scrutiny following revelations surrounding Peter Mandelson’s past ties to Jeffrey Epstein, raising questions over the appointment of Mandelson as UK ambassador to the US in late 2024.

With political uncertainty resurfacing at Westminster, Sterling may remain under pressure unless confidence stabilises.

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