British Pound to Euro Forecast: Sterling Vulnerable Ahead of UK Budget

Modified: Thursday, 4 September 2025 08:33 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Sterling Vulnerable Ahead of UK Budget

The Pound to Euro exchange rate (GBP/EUR) outlook remains under pressure, with Sterling stuck near 3-week lows around 1.1500 as bond-market turmoil and fiscal worries dominate investor sentiment.

A rebound in UK services data has provided some support, but surging gilt yields, political uncertainty ahead of the November budget, and fragile global risk appetite continue to weigh on the British Pound forecast.

Analysts warn that while GBP/EUR selling may be overdone in the short term, the broader outlook still points to caution, with markets watching closely for Bank of England policy signals and fiscal credibility.

GBP/EUR Forecasts: Held Near 3-Week Lows

Sterling attempted to stabilise on Wednesday, but the Pound to Euro (GBP/EUR) exchange rate was held fractionally below 1.1500 and close to 3-week lows.

Investment banks consider that Pound selling may be overdone, but traders remain notably nervous over domestic and global conditions.

Stronger data for the UK services-sector index provided some Pound support, but the 30-year yield is still close to 27-year highs. The Bank of England also faces major difficulties in setting policy.

ING expects near-term GBP/EUR support around current levels; “For now, we think EUR/GBP belongs below 0.870.” (GBP/EUR support below 1.15)

The bank does expect a retreat to 1.1365 by the end of 2025.

The final reading for the August UK PMI services-sector was revised to 54.2 from the flash reading of 53.6, above the July reading of 51.8 and the strongest reading for 16 months.

Business confidence also increased to a 10-month high.

Some of the details were less favourable as employment declined for the 11th successive month while a sharp jump in input costs helped trigger the largest increase in output charges for four months.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; "August data highlights a welcome acceleration of output growth and a swift rebound in order books after July's dip, leaving the UK service economy on a much stronger footing as the end of summer comes into view.”

He did, however, add; “many service providers still commented on elevated government policy uncertainty and worries about forthcoming tax-raising measures expected in the autumn Budget."

National Australia Bank head of FX research Ray Attrill noted that bond-market pressures are global.

He did, however, note UK vulnerability; "It's probably resonating a bit more in the UK because of memories of the Liz Truss episode. I think part of the concern is that there's an autumn statement or a budget that's coming up."

Chancellor Reeves announced that the budget will be on November 26th.

ING considers that inflation pressures are the main driver rather than fiscal policy which should limit potential Pound selling.

It added; “We’re not optimistic on the pound as we still expect the BoE to cut rates by year-end, but the moves in back-end gilts don’t seem dysfunctional and don’t justify a persistent risk premium on sterling, especially given the UK government’s likely fiscal consolidation plans.”

Danske Bank expects sentiment to remain fragile; “We do expect Labour to tighten fiscal policy significantly at the next budget to meet the fiscal objectives. However, with the cabinet reshuffle and the possibility of Reeves being replaced as Chancellor, the prospects do not look promising and similar selloffs are likely ahead of the next budget.”

It also noted the importance of global conditions; “We remain cautiously optimistic that the move in UK space is overdone, but stress that if risk appetite significantly worsens the moves could continue for UK assets including EUR/GBP.”

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TAGS: Pound Euro Forecasts