Pound-to-Euro Forecast: GBP Tipped to FALL to 1.1365 says UK Bank

July 23, 2025 - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: GBP Tipped to FALL to 1.1365 says UK Bank

After failing to make headway on Monday, the Pound Sterling to Euro exchange rate (GBP/EUR) has retreated to around 1.1520 on Tuesday.

The latest UK government borrowing requirement has increased concerns over tax hikes in the Autumn as well as unsettling the bond market which has hampered the Pound in global markets.

Equity markets, however, have held firm which has provided some Sterling relief and helped avoid a larger sell-off.

Rabobank is uneasy over UK fundamentals and has a 6-month GBP/EUR forecast of 1.1365.

ING notes that the Pound has not been able to take advantage of more favourable yield spreads which indicates that markets are putting a higher risk premium on the UK currency.

The bank added; “That GBP risk premium is partly because of the euro’s idiosyncratic strength (due to its appeal as a reserve currency) but may also embed some UK budget concerns. Those were fuelled further this morning as the UK unveiled larger borrowing for June than expected by the UK fiscal watchdog.”

The UK government borrowing requirement surged to £20.7bn for June from £14.1bn the previous year. This was above consensus forecasts of £17.4bn and the second-highest June deficit on record.


The deficit was also above the 17.1bn OBR forecast for the month.

For the first three months of fiscal 2025/26, the deficit widened to £57.8bn from £50.3bn the previous year which is close to the OBR target for the first quarter of the year.

Looking at induvial components, debt interest payments more than doubled to £16.4bn from £8.0bn the previous year.

There was an increase in receipts with a big increase in NIC contributions to £17.4bn from £14.3bn, but this was offset by a strong increase in overall spending.

ONS acting chief economist Richard Heys commented; “The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in income from taxes and National Insurance contributions, causing borrowing to rise in June.”

Gilts lost ground after the data with the 10-year yield increasing to 4.63%.

The yield, or interest rate, on 10-year UK bonds has risen by two basis points (0.02 percentage points) to 4.634%.


Longer-dated, 30-year, bond yields have risen by almost three basis points to 5.47% and only 13 basis points below 27-year highs seen in April.

Higher yields will put further upward pressure on debt servicing, increasing the risk of a vicious cycle for the Pound.

The data triggered fresh market fears surrounding the budget outlook and policy implications.

According to Capital Economics UK economist Alex Kerr; “the government’s u-turns on spending cuts and potential upward revisions to the OBR’s borrowing forecasts means the Chancellor will probably need to raise £15-25bn at the Autumn Budget to maintain the £9.9bn of headroom against her fiscal mandate.”

He added; “And given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate significant increases in borrowing, she will probably have to raise taxes instead.”

Goldman Sachs added; "We think a rising fiscal risk premium is the main driver of the recent outperformance of EUR/GBP."

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TAGS: Pound Euro Forecasts