Pound Sterling Forecasts Warn Crash vs Euro, Dollar on 1976-Style UK Crisis

Modified: Friday, 22 August 2025 11:16 BST - Written by Tim Boyer

STORY LINK Pound Sterling Forecasts Warn Crash vs Euro, Dollar on 1976-Style UK Crisis

The British Pound faces its most alarming warning in decades, with GBP analysts bracing for heavy losses against the euro and US dollar. A former Bank of England policymaker has drawn chilling parallels with the economic crash of 1976 - when the UK was forced into an IMF bailout. With inflation stuck near 4%, gilt yields heading towards 5%, and government borrowing spiralling, fears are growing that the Pound Sterling could be sliding towards a historic collapse.

Former Bank of England (BoE) Monetary Policy Committee (MPC) Andrew Sentance has warned that the UK will see a repeat of the 1976 economic crisis with bonds and the Pound sliding in tandem.

Rachel Reeves is on course to deliver a Healey 1976-style crisis in late 2025 or 26. Like Healey, she has massively boosted public spending, borrowing and taxes - fuelling both demand-pull and cost-push inflation. Unless policies are reversed we are heading for an economic crash!

— Andrew Sentance (@asentance) August 20, 2025

There was a mini scare in January, but Sentance has warned that this is just a taster for more severe turbulence within the next few months.

ING expects the Pound to Euro (GBP/EUR) exchange rate to slide to 1.11 by the end of 2026.

There are parallels with 1976 in weather terms as that year was famous or infamous for a prolonged period of hot weather and drought with the government appointing a minister for drought.

It’s also worth noting that this was followed by heavy rain and floods.


As far as the economy is concerned, 1976 marked economic humiliation for the Callaghan government with Chancellor Healey forced to run to the IMF for an emergency loan as the Pound plummeted in currency markets.

The pound collapsed amid a widening budget deficit, a yawning current account imbalance and stubbornly persistent inflation with the Bank of England unable to support growth via cuts in interest rates.

The government secured a $3.9bn loan, half of which was drawn down by the administration.

Andrew Sentance, who was well known as a very hawkish voice on the MPC has issued a stark new warning.

According to Sentance; “Rachel Reeves is on course to deliver a Healey 1976-style crisis in late 2025 or 26. Like Healey, she has massively boosted public spending, borrowing and taxes - fuelling both demand-pull and cost-push inflation. Unless policies are reversed we are heading for an economic crash!”

The latest official inflation data recorded headline and core inflation at 3.8%, but Sentence considers that the data is underestimating inflation.

Looking at a wider range of indicators, Sentance considers that inflation is already 4.1% and set to increase further.


The 10-year bond yield has increased to above 4.75% and close to 4-month highs. According to Sentence, the yield could increase to 5% before long.

The Pound posted sharp losses in January as fears surrounding UK economic policy increased.

As bond yields continue to move higher, the cost of debt servicing continues to increase. This risks a vicious cycle as bond markets and the Pound crash in tandem.

Sentance has also continued to criticise Bank of England policy.

According to Sentance; “The shocking surge in UK inflation continues. When will the MPC recognise that control of inflation requires policy action to bear down on price rises with interest rates. Cutting rates while inflation is rising is a perverse and irresponsible policy.”

Danske Bank is wary over UK fundamentals and expects GBP/EUR losses to 1.1235 on a 6-12-month view. According to Danske; “The key risk to seeing EUR/GBP trade substantially higher than our forecast is a sharp sell-off in global risk and/or renewed focus on the UK’s fragile fiscal position.”

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TAGS: Pound Sterling Forecasts