British Pound to Euro Forecast: GBP Gains as BoE Cut Bets Fade

– Written by


Tim Boyer

STORY LINK British Pound to Euro Forecast: GBP Gains as BoE Cut Bets Fade

The Pound to Euro exchange rate (GBP/EUR) has held firm near 1.1550, close to 10-day highs, as rising UK bond yields and a sharp repricing of Bank of England policy expectations supported Sterling.

Markets have rapidly scaled back expectations for near-term rate cuts following the recent surge in energy prices, helping the Pound outperform despite ongoing concerns over weak UK growth and subdued consumer spending.

GBP/EUR Forecasts: Near 10-Day High

The Pound to Euro (GBP/EUR) exchange rate has maintained a firm tone and is trading around 1.1550, close to 10-day highs near 1.1580.

The Euro and Pound moves have tended to move in tandem with the shifts in energy prices and shifts in expectations key factors driving currency moves.

Higher UK yields and a big shift in Bank of England (BoE) expectations have underpinned the Pound.

Markets have abandoned calls for the BoE to cut rates in March and there has been chatter that rate hikes might be necessary to curb inflation.

ING commented; “the sterling curve has seen one of the biggest repricings relating to this oil shock. That is probably a function of UK inflation already being well above target at 3% and the Bank of England having sufficient hawks to call time on the easing cycle.”

The bank noted the potential for further near-term GBP/EUR gains to 1.1630; “We are not big fans of sterling, but given that both the eurozone and the UK are hit by the energy shock and that BoE monetary response could be greater, there is outside risk this EUR/GBP correction extends back to the 0.8600/8615 area again – which should prove strong support.”

Nevertheless, the bank still expects medium-term GBP/EUR losses to 1.11.

The latest UK data indicated subdued consumer spending. The British Retail Consortium (BRC) reported a like-for-like sales increase of 0.7% for February from 2.3% previously.

Barclays also noted that spending was weak in February and chief economist Jack Meaning commented; “The start of 2026 had brought positive signs of growth and improving consumer sentiment. A new, prolonged bout of uncertainty risks snuffing that out before it has had a chance to really get going.”

Danske Bank noted on the European risks; “The longer the problems last, the higher the risk of a more persistent inflation shock. But for Europe particularly, the negative growth impact would also be significant in that case.”

The British Chambers of Commerce (BCC) has cut its 2026 UK GDP growth forecast to 1.0% from 1.2%.

BCC head of research David Bharier commented; “The UK economy remains stuck in a low-growth pattern. Our forecast of just 1% growth in 2026 reflects weak productivity, subdued investment and cautious consumer spending.”

He added; “The recent escalation of conflict in Iran risks interrupting progress made on inflation. Higher energy prices linked to it could keep inflation firmly above the 2% target and lead the Bank of England to hold the interest rate longer than expected.”
Most investment banks are still backing BoE cuts later this year.

Danske added; “ Despite the recent rise in short-term market inflation expectations, we do not think major central banks will react by hiking rates. And they should not.”

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TAGS: Pound Euro Forecasts