British Pound to Euro Forecast: Limited GBP Recovery to 1.156

Modified: Thursday, 21 August 2025 14:15 BST - Written by Ben Hughes

STORY LINK British Pound to Euro Forecast: Limited GBP Recovery to 1.156

Pound Sterling relief after latest UK data, GBP/EUR rebounds from one-week lows

The Pound to Euro exchange rate (GBP/EUR) dipped to 1-week lows below 1.1540 on Wednesday, but stronger-than-expected data has triggered a limited recovery to 1.1560 on Thursday.

There was further evidence of stronger demand in the UK services sector, and the latest government borrowing data was better than expected.

The UK PMI manufacturing index retreated to a 3-month low of 47.3 for August from 48.0 previously and below consensus forecasts of 48.2.

The services-sector index, however, strengthened to a 12-month high of 53.6 from 51.5 and well above market expectations of 51.8.

The composite PMI index also posted a 12-month high for the month, but employment continued to decline on the month.

There was further upward pressure on input costs, and prices in the services sector increased at the fastest rate for three months.


Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented, “The flash UK PMI survey for August indicated that the pace of economic growth has continued to accelerate over the summer after a sluggish spring, the rate of expansion now at a one-year high.”

The data is unlikely to make it easier for the Bank of England to determine monetary policy.

Williamson added, “Among a divided Bank of England rate-setting committee, the perceived need for any future rate cuts will be very much data dependent."

The July UK government borrowing requirement declined to £1.1bn for July from £3.4bn the previous year, and the lowest requirement for three years.

For the first four months of the fiscal year, the deficit increased to £60.0 billion from £53.3bn the previous year.

Their data will provide immediate relief, but there are still longer-term reservations.

According to KPMG senior economist Dennis Tatarkov, "the longer-term picture for public finances remains challenging".


He added, "The coming Budget is likely to focus on addressing any potential shortfall against current fiscal targets, which we estimate at £26.2bn. However, the assessment of the shortfall crucially depends on changes to the OBR's forecast."

The Euro-Zone PMI manufacturing index improved to a 41-month high of 50.5 for August from 49.8 the previous month and above consensus forecasts of 49.5

The services-sector index edged lower to 50.7 from 51.0 and closed to market expectations, while there was stronger upward pressure on prices.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented, “Things are getting better. Economic activity has picked up in both manufacturing and services. Despite headwinds like U.S. tariffs and general uncertainty, businesses across the eurozone seem to be coping reasonably well.”

On inflation, he added, “The European Central Bank might wince a little at the rising cost pressures in the services sector. That said, there’s a bit of relief in the fact that inflation in service-sector selling prices has remained more or less steady.”

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TAGS: Pound Euro Forecasts