Pound-to-Euro Week Ahead Forecast: Banks Split on Sterling’s Long-Term Outlook

Modified: Sunday, 10 August 2025 17:00 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Week Ahead Forecast: Banks Split on Sterling’s Long-Term Outlook

The Pound Euro (GBP/EUR) exchange rate faces a starkly divided outlook, with Rabobank forecasting a drop to 1.1365 by early 2026 on UK fiscal and growth concerns, while Bank of America predicts a rally to 1.2650 by the end of 2026.

The split reflects contrasting views on the UK economy, Bank of England policy path, and Eurozone prospects. GBP/EUR hit a one-week high near 1.1560 after the BoE cut interest rates to 4.00% but later eased to around 1.1530 as markets reassessed the scope for further rate cuts.

GBP/EUR Forecasts

Rabobank forecasts that the Pound to Euro exchange rate (GBP/EUR) will retreat to 1.1365 by early 2026 on fundamental UK concerns.

In contrast, Bank of America is still forecasting that GBP/EUR will strengthen to 1.2650 by the end of 2026.

GBP/EUR spiked to 1-week highs close to 1.1560 after the Bank of England (BoE) policy decision before settling around 1.1530.

The BoE cut interest rates by 25 basis points to 4.00% during the week which was in line strong consensus forecasts.


There was, however, a narrow 5-4 vote for the cut and the bank remains concerned over inflation. In response, markets are now more doubtful that rates will be cut again in November.

MUFG commented; “The BoE’s updated projections show a higher inflation path and a weak growth outlook in what is an unwelcome stagflationary mix for the UK economy and helps to explain the degree of division between policymakers.”

It added; “We still believe that the direction for rates remains downwards, but the timing is less clear. As it stands, we still expect that the path for another quarterly cut in November will clear after the summer as labour market slack continues to emerge and growth remains muted against a backdrop of fiscal uncertainty. We continue to expect a terminal rate of 3.25% next year.”

According to MUFG; “we continue to expect EUR/GBP to regain upward momentum over the coming weeks and months.”

The NIESR institute warned that the government will have to tighten policy by over £40bn this Autumn to keep borrowing within fiscal rules.

Rabobank notes that the government will have to raise taxes on workers or look to lower spending estimates. It added; “Either way, the news will not be good for growth potential in the UK. We expect the BoE to announce an additional rate cut in November and in recognition of the UK’s difficult fiscal position we expect EUR/GBP to grind up to the 0.88 level around the start of next year.”

It added; “It has been clear for some months that more UK tax hikes are likely unavoidable this autumn. The NIESR’s report raises the potential that these will be bigger than previously expected.”


Bank of America (BoA) remains much more confident over the Pound outlook; “we have been increasingly perplexed by what we see as markets engineering a narrative to suit a bearish view on GBP. We think the pessimism has been excessive, leaning more heavily on politics and social media rather than what matters.”

It considers that the narrative surrounding GDP data illustrates excessive negative sentiment.

According to BoA; “For the UK, like many other countries, Q1/Q2 data was significantly impacted by impending tariff announcements. Nonetheless this did not stop advocates of “doom-loop” from singling out GBP in particular.”

It added; “we stick with our lower EUR/GBP conviction as we think the UK has emerged from the tariff tumult in a better position than the Eurozone, that BoE pricing is a more accurate read vs ECB pricing (we still look for further easing from the ECB).”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts