British Pound-to-Euro Forecast: Limited GBP Respite vs EUR

Modified: Thursday, 21 August 2025 22:23 BST - Written by Ben Hughes

STORY LINK British Pound-to-Euro Forecast: Limited GBP Respite vs EUR

The Pound to Euro exchange rate (GBP/EUR) slipped to one-week lows below 1.1540 on Wednesday but has since staged a modest rebound, trading near 1.1560 on Thursday. The recovery followed stronger-than-expected UK PMI data and improved government borrowing figures, offering Sterling some respite after a weaker start to the week.

Markets were encouraged by signs of resilience in the UK services sector, with business activity reaching its strongest level in a year, even as manufacturing output remained firmly in contraction. At the same time, the Treasury’s latest borrowing figures came in better than forecast, easing near-term fiscal concerns.


UK data boost

The UK PMI manufacturing index retreated to a three-month low of 47.3 for August from 48.0 previously, below consensus forecasts of 48.2. However, the services-sector index strengthened sharply to a 12-month high of 53.6, up from 51.5 and well ahead of expectations for 51.8.

The composite PMI index also posted a 12-month high, although employment continued to decline. Input costs faced renewed upward pressure, and service-sector prices rose at the fastest pace in three months.


Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“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 complicates the outlook for Bank of England 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 UK’s July government borrowing requirement declined to £1.1bn, down from £3.4bn a year earlier and the lowest for three years. Over the first four months of the fiscal year, however, the deficit rose to £60.0bn from £53.3bn previously.

KPMG senior economist Dennis Tatarkov cautioned:
"The longer-term picture for public finances remains challenging. 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."

Across the Channel, the Eurozone PMI manufacturing index rose to a 41-month high of 50.5 in August from 49.8, beating forecasts of 49.5. The services-sector index edged lower to 50.7 from 51.0, broadly in line with expectations. Price pressures picked up, particularly in services.

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