British Pound to Euro Forecast: Sterling Struggles Below 1.16 as UK Outlook Worsens

Modified: Tuesday, 2 September 2025 08:06 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: Sterling Struggles Below 1.16 as UK Outlook Worsens

The Pound to Euro outlook (GBP/EUR) remains under pressure after the pair slipped to three-week lows near 1.1530, with only a modest rebound to 1.1540.

Pound Sterling is struggling as UK fiscal fears intensify, with speculation over fresh tax rises and a difficult autumn budget weighing on confidence.

Foreign exchange analysts warn that trial balloons on tax hikes, combined with weak UK manufacturing data, leave GBP/EUR vulnerable below 1.16 despite stabilising Eurozone conditions.

GBP/EUR Forecasts: Close to 3-Week Lows

The Pound to Euro exchange rate (GBP/EUR) briefly dipped to 3-week lows just below 1.1530 on Friday before a very tentative recovery to 1.1540 on Monday.

French budget fears have been contained at this stage while there are still important questions over the UK outlook with chatter surrounding tax increases likely to intensify as the House of Commons returns from the summer break.

Markets are continuing to fret over UK fiscal policy. On Friday, the Institute for Public Policy Research (IPPR) called for a fresh tax on the banking sector to offset windfall benefits from the Bank of England quantitative easing programme.

UK equities came under pressure on Friday, although there was a recovery on Monday.

Wider concerns over the potential for fiscal tightening sapped Pound support, especially with the House of Commons returning from recess this week which will raise the political temperature.

ING commented; “Look out for further tax-raising trial balloons from the UK government – the most recent of which was Friday's suggestion of raising corporation tax for the UK banking sector.”

Markets will also be monitoring any government announcement on the timing of the budget with a notice period of 10 weeks required.

ING added; “The UK government remains in a tight fiscal corner, and one of the risks to sterling over the coming months is a tight fiscal/looser monetary policy package.”

The UK PMI manufacturing index was revised down to a 3-month low of 47.0 for the final August reading from the flash reading of 47.3.

According to Rob Dobson, Director at S&P Global Market Intelligence noted that production has held firm and added; “Business confidence has also lifted to a six-month high, reflecting hopes that the trading environment is starting to settle down.

He still expressed caution and noted the high degree of uncertainty; “However, August also saw a steep drop in UK manufacturers' new orders, with total order books and overseas demand both falling at some of the fastest rates seen over the past two years.”

Elsewhere, Nationwide reported that house prices edged 0.1% lower for August after a 0.5% increase the previous month with the year-on-year increase at 2.1% from 2.4%.

Mortgage approvals increased to 65,400 for July from 64,600 the previous month.

The final Euro-Zone manufacturing PMI figure for August was revised slightly higher to 50.7 from the flash reading of 50.5 and confirmed at a 38-month high.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “The economic recovery in the manufacturing sector is broadening, as conditions are improving in six out of the eight countries for which PMIs are recorded.

He added; “The recovery is real but remains fragile.”

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TAGS: Pound Euro Forecasts