British Pound to Euro Forecast: March BoE Cut Priced In After GDP Miss

– Written by


Frank Davies

STORY LINK British Pound to Euro Forecast: March BoE Cut Priced In After GDP Miss

The Pound to Euro exchange rate (GBP/EUR) pushed towards 1.1500 before paring gains after softer-than-expected UK GDP data reinforced expectations of a Bank of England rate cut in March.

While immediate fears of a leadership challenge to Prime Minister Starmer have eased for now, fragile growth momentum and rising rate-cut bets leave Sterling vulnerable despite its recent rebound in global markets.

GBP/EUR Forecasts: .15 Ahead of UK GDP Test

The Pound to Euro (GBP/EUR) exchange rate has secured net gains on Wednesday with an advance to near 1.1500 as the Pound has fought back in global markets.

Immediate fears over a challenge to Prime Minister Starmer have eased with Labour Cabinet members and MPS deciding to draw back from an immediate challenge to his leadership.

This easing of stresses has helped underpin the Pound, but the underlying situation is still precarious and the crisis could erupt again very quickly. Meanwhile, the latest GDP data will be watched closely on Thursday.

The UK bond market will be a key litmus test for confidence in UK assets and the Pound. The 10-year yield has retreated from 2026 highs above 4.60%, but there has been selling when the yield dips below 4.50% which suggests that there is still underlying vulnerability.

ING commented; “Now the EUR/GBP bias is higher as we brace for further pressure on PM Starmer. Potential flashpoints are the performance of the Labour Party in a by-election on 26 February and local elections on 7 May. His departure and that of his Finance Minister, Rachel Reeves, would hit sterling and Gilts.”

It has a near-term GBP/EUR target of 1.1360.

Barclays notes the potential for more aggressive Bank of England rate cuts; “Although the market is now better priced for such an outcome, there is still scope for further front-loading those cuts.

It added; “We also continue to monitor Catherine Mann’s take on the economy given her activist policy approach and increased unease about the state of the labour market.”

Scotiabank noted the notable shift in pricing for interest rate cuts; “A week ago, the rates market priced 5bp of BOE easing for March; now it is pricing 18bp.

The bank also noted underlying political pressures; “If Polymarket is a guide, the consensus
view is that Sir Kier Starmer is unlikely to be Prime Minister after the middle of the
year, and growth concerns remain.”

The UK economic performance will be important for Bank of England (BoE) expectations and will also have important political implications.

Strong data would bolster the government’s position and dampen expectations of a more aggressive BoE policy. Weaker than expected data would trigger fresh political difficulties and reinforce chatter of faster rate cut.

The latest UK GDP data disappointed, with fourth-quarter growth undershooting expectations and confirming that the economy ended the year on a softer footing.

The weaker print has reinforced expectations that the Bank of England will cut interest rates at its March meeting, particularly after last week’s narrow 5–4 vote to hold rates.

Pantheon Macroeconomics commented; “Disappointing Q4 keeps a March rate cut on track, but underlying momentum looks too solid for more than one rate cut this year.”

The consultancy suggested that while the near-term case for easing has strengthened, the broader growth backdrop may not justify a sustained or aggressive cutting cycle.

For Sterling, that creates a delicate balance; near-term rate expectations are shifting in a dovish direction, but if the slowdown proves shallow rather than structural, GBP/EUR downside could remain contained unless political tensions flare again.

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TAGS: Pound Euro Forecasts