Pound-to-Euro Week Ahead Forecast: GBP Set for EUR Drop to 1.12

Modified: Tuesday, 26 August 2025 08:49 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Week Ahead Forecast: GBP Set for EUR Drop to 1.12

1. Live rates update:
2. GBP/EUR 1.15767 (-0.06%)
3. GBP/USD 1.34587 (+0.03%)

The Pound to Euro exchange rate (GBP/EUR) outlook has turned increasingly negative after the single currency surged on Powell’s dovish Jackson Hole speech, pushing Sterling back under 1.1550.

Foreign exchange analysts warn the Pound Sterling forecast vs Euro looks increasingly fragile, with some institutions, such as Danske Bank, projecting GBP/EUR could slide to 1.1235 within 12 months.

Mixed UK data, stubborn 3.8% inflation, and doubts over Bank of England policy are keeping Sterling under pressure, while Euro resilience underscores the risk of deeper losses in the GBP/EUR outlook.

GBP/EUR Forecast: UK stagflation Fears

Danske Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.1235 on a 6-12-month view.

Wells Fargo expects little GBP/EUR change by the end of 2025.

The Euro surged on Friday after Fed Chair Powell indicated that a September rate cut was likely and the Pound to Euro (GBP/EUR) exchange rate retreated to just below 1.1550.

The latest UK data recorded a better-than-expected figure for government borrowing with an increased tax take following the National Insurance changes.

PMI business confidence data was mixed but did represent a slight positive as stronger growth in the services sector offset another weak performance by the manufacturing sector.

The headline and core inflation rates both increased to 3.8% for July which will cause further difficulties in setting monetary policy.

The Bank of England (BoE) policy debate remains a very live and key issue.

Deutsche Bank commented; “For the hawks a more resilient economy will only raise the bar for further rate cuts this year, until there’s more evidence that underlying inflation is slowing further, and wage settlement data is receding towards more target-consistent levels.”

ING is more confident that the bank will cut again this year; “UK inflation's up, and markets are becoming increasingly sceptical that the Bank of England will cut rates again this year. But we're sticking with our view that they will cut again in November by 25 basis points.”

It added; “Although prices are rising strongly, we reckon some of the concerns are overblown. And the BoE will be looking at the deteriorating jobs situation, and that could well influence their decision.”

Danske Bank remains wary over the UK fundamentals; “We increasingly see domestic factors and the relative growth outlook between the UK and the euro area as becoming GBP negatives. This is further amplified by divergence in the fiscal policy outlook with UK fiscal policy set to be tightened in the Autumn.”

UBS pointed to the stagflation risks; “we also note that the UK is already (and has been for some time) in a stagflationary situation. While the latest GDP data was stronger, it’s still well below potential and the labor market has been deteriorating subsequently.”

Danske added; “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.”

SocGen expects Pound selling on rallies; “As the UK Government prepares to increase taxes, inflation remains persistently higher than in the rest of Europe and growth remains anaemic, short GBP against the rest of Europe is an attractive long, medium and short-term trade.”

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TAGS: Pound Euro Forecasts