Pound to Euro Forecast: Sterling Slides as UK GDP Triggers Fresh Fears

June 12, 2025 - Written by Tim Boyer

STORY LINK Pound to Euro Forecast: Sterling Slides as UK GDP Triggers Fresh Fears

The Pound to Euro exchange rate (GBP/EUR) was generally on the defensive during Wednesday, and there was a further setback on Thursday following the latest GDP data.

Markets are particularly sensitive towards the UK growth data given implications for fiscal policy and the need for growth to support aggressive spending plans. Traders were also more confident over an August Bank of England rate cut.

A larger-than-expected contraction triggered GBP/EUR losses to 5-week lows around 1.1760, with a firm Euro trend also underpinning the pair.

The Euro was underpinned by expectations that there would be a further shift into Euro reserves as doubts about the dollar continued to build.

According to ING; “the building narrative of wider eurozone versus UK policy rate spreads (the ECB has nearly finished easing, the BoE could accelerate rate cuts) warns that EUR/GBP trades to 0.8550 and 0.8600 on a multi-month view.

This would equate to 1.1630 - 1.1695 for GBP/EUR.

RBC Capital Markets does not rule out the potential for GBP/EUR gains to 1.2050 if trade tensions ease, but expects a retreat to 1.1630 at the end of 2025.


According to provisional data, the UK GDP contracted by 0.3% in April, compared with consensus forecasts of a 0.1% decline, following a 0.2% increase in March.

This was the worst monthly performance for 18 months.

The services sector declined 0.4% on the month, reversing the March gain, while production output declined 0.6%, but there was 0.9% growth in construction.

The economy did record 0.7% growth in the three months to April and there was certainly evidence of distortions.

ONS Director of Economic Statistics Liz McKeown commented; “The economy contracted in April, with services and manufacturing both falling. However, over the last three months as a whole GDP still grew, with signs that some activity may have been brought forward from April to earlier in the year.”

The goods trade deficit also widened to £23.2bn for April from £19.9bn the previous month with exports taking a hit after a March surge to beat tariffs.

Exports of goods to the United States slumped £2bn billion in April, the largest decline on record.


Markets will remain very sensitive to growth data, especially as there will be an important impact on the fiscal outlook.

The RICS housing index retreated to -8% for May from -3% the previous month which was weaker than the -3% expected and the lowest reading for 10 months.

According to the RICS; “sentiment across the UK residential property market remains somewhat subdued, with ongoing uncertainty around global trade policies and the dampening effect of transactions being brought forward ahead of the Stamp Duty changes at the end of March continuing to weigh on buyer activity"

ING commented; “This softer GDP data, following the softer wage data earlier this week, will suggest the Bank of England does have good reason to cut rates after all.”

Capital Economics chief UK economist Paul Dales added; “The 0.3% m/m fall in real GDP in April supports our view that the strength in Q1 was unsustainable. This won’t prompt the Bank of England to cut interest rates next Thursday. But it is one more piece of news pointing to another cut in August.”

Matthew Ryan, head of market strategy Ebury noted the shift in market pricing; “While there is little chance of any change at next week’s meeting, we see a strong possibility that the MPC ditches its hawkish bias, which could pave the way for an August cut.”

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TAGS: Pound Euro Forecasts