Pound-to-Euro Forecast: Diverging Bank Calls Point to Turbulent GBP Outlook

Modified: Monday, 8 September 2025 21:57 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: Diverging Bank Calls Point to Turbulent GBP Outlook

The Pound to Euro exchange rate (GBP/EUR) traded at 1.15167 on Monday (-0.03%), with forecasts still sharply divided over the currency pair’s longer-term direction.

MUFG warns Sterling is “trapped in a fiscal-doom loop” and could sink to 1.1235 by mid-2026, while Credit Agricole argues the Euro is more vulnerable, with political risks in France likely to tip GBP/EUR back towards 1.1765. Traders remain caught between a UK budget dominated by tax-hike fears and Eurozone uncertainty ahead of a no-confidence vote in Paris.

GBP/EUR Forecasts: Fiscal Cliff-Edge?

MUFG predicts that GBP/EUR will edge lower to 1.1500 by the end of 2025, with further losses to 1.1235 by Q2 2026. The bank sees Sterling weighed down by weaker growth, higher yields and the risk of repeated tax increases.

Credit Agricole, while cautious on UK fundamentals, expects GBP/EUR to strengthen to 1.1765 by late 2025 as French difficulties undermine the single currency.

UK fiscal tensions remain high after 30-year gilt yields spiked to 27-year highs above 5.70% before easing back. Concerns over Chancellor Reeves’ standing briefly rattled markets, later overshadowed by a cabinet reshuffle that saw Deputy PM Raynor resign.

BoE Governor Andrew Bailey also warned that barriers to further rate cuts have risen:


“There is now considerably more doubt about exactly when and how quickly we can make those further steps.”

MUFG cautioned;

“There are growing concerns of the government being trapped in a fiscal-doom loop of weaker-than-expected growth and higher-than-expected yields, forcing the government to increase taxes, in turn weighing further on growth.”

The bank added that Reeves is expected to announce another round of tax hikes to close a fiscal gap now estimated at £30–50bn.

BNY Mellon argued that a weaker Pound may be needed to attract foreign inflows:

“We see further GBP declines as necessary to generate similar interest.”

Rabobank underlined how fiscal options are narrowing:

“Limited by the small appetite for spending cuts from its own MPs, its pledges not to raise taxes on workers, its own fiscal rules and the limited appetite of the gilt market for more supply, the UK government has backed itself into a corner which has underpinned the importance of the UK’s autumn budget.”

It added;

“Headed into the UK’s autumn budget we see scope for GBP to falter.”

French Politics Remain a Wild Card

Credit Agricole warned that Sterling’s weakness may be overdone given relative credit outlooks:

“GBP could remain a pressure valve of sorts for wary investors who worry about the impact from the vicious circle between growing government debt load, higher taxes and weak economic growth outlook in the UK.”

The bank noted that EUR/GBP trades at a significant premium to fundamentals and expects French politics could weigh on the Euro:

“Our macro team sees a significant risk that it could lead to a new general election in France and thus another spike in political & fiscal risks that could keep the EUR under pressure.”

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TAGS: Currency Predictions Pound Euro Forecasts