Pound Sterling to Euro Forecast: Steady, Then Retreat to 1.1365

July 13, 2025 - Written by David Woodsmith

STORY LINK Pound Sterling to Euro Forecast: Steady, Then Retreat to 1.1365

The Pound to Euro exchange rate (GBP/EUR) dipped to near 1.1580 from 1.1615 after the latest UK GDP report before recovering slightly to 1.1590.

ING considers that GBP/EUR can hold steady initially before a retreat to 1.1365 at the end of next year.

At the start of European trading, the ONS reported that GDP contracted 0.1% in May compared with expectations of 0.1% growth and following a 0.3% decline for April.

The services sector secured slight growth, but the industrial and construction sectors both contracted.

Investec commented; “Following this data [the 0.1% drop in GDP in May], a contraction in activity in Q2 as a whole is possible, but this is still not our base case.”

PwC chief economist Barret Kupelian looked at the global perspective; “Our main scenario projection before today’s data release showed the UK middle-of-the-pack when ranked amongst the G7 on economic growth for this year, growing at about 1%. Now, with growth momentum rapidly slowing, there’s a genuine risk we slip down the rankings.”

Deutsche Bank’s Sanjay Raja was more upbeat on the outlook; “The latest PMI data point to a rebounding economy. Household sentiment is on the rise (albeit gradually). And business sentiment has pushed above its long-run average.”


He added; “If the economy does indeed slow to 0.1% q/q in Q2-25, this would still mean that the UK economy had grown by 0.8% in the first half of the year, which would still be pretty healthy.”

Policy implications will continue to be assessed by currency markets.

The data will trigger fresh speculation over the need for further tax increases in the Autumn.

ING commented; “With the possible exception of extending the tax threshold freeze by another year, there are few other levers the Treasury can pull that would raise material amounts of additional tax revenue. It’s therefore increasingly likely the government will have to revisit a manifesto pledge not to raise the major taxes on individuals.”

Monetary policy will also be in focus, especially as expectations of tax hikes could dampen consumer spending.

ING pointed to the risk that the labour market deteriorates more sharply; “We'll get more colour in next Thursday's jobs report, and if things are bad, it would put serious pressure on the BoE to speed things up on rate cuts.”

It added; For now, our base case is that the Bank cuts in August and November, but the risks are clearly tilted towards more frequent rate cuts before year-end.


Markets remain very confident that the Bank of England will cut rates in August.

Deutsche Bank’s Sanjay Raja agrees; “For now, weakness in GDP will cement some on the MPC’s fears that demand is loosening faster than expected. An August rate cut looks almost certain. And we expect more to come in Q4-25.”

MUFG noted that global reserve managed increased Sterling holdings significantly in the first quarter of 2025 despite a bond sell-off during the first quarter and this could cushion the Pound if this trend is sustained.

According to the bank this could mean that market fears are overblown; “interestingly, we also had a mini-crisis in the Gilt market in January as the government was seen as already not meeting their own fiscal rules announced last October, which prompted a sharp sell-off. The move reversed though with indications by the government that steps would be taken. But still the reserve manager buying suggests less concerns than the broader market.”

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TAGS: Pound Euro Forecasts