Pound-to-Euro Falls as UK Borrowing Overshoots Despite Retail Sales Beat

Modified: Friday, 19 September 2025 09:00 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Falls as UK Borrowing Overshoots Despite Retail Sales Beat

The Pound Euro (GBP/EUR) exchange rate slipped on Friday after the UK’s retail sales beat expectations, but UK government borrowing figures surprised on the downside, adding pressure to Sterling.

At the time of writing, the Pound to Euro exchange rate (GBP/EUR) is trading at €1.1473, down –0.22% on the day, while the Pound to Dollar exchange rate (GBP/USD) is at $1.3511, down –0.32%.

The Pound (GBP) had remained steady against most major peers on Thursday after the Bank of England’s latest interest rate decision.

As forecast, the BoE opted to keep rates on hold at 4.0% during its September meeting, leaving Sterling largely unmoved.

The central bank’s Governor Andrew Bailey reinforced the BoE’s cautious and gradual approach to monetary policy, but the comments failed to spark significant movement in the Pound, which traded in a tight range following the announcement.

The Euro (EUR) was able to hold its ground against most major peers on Thursday, even in the absence of fresh economic data.

Despite the lack of catalysts, the single currency managed to edge higher against several rivals, buoyed by its safe-haven appeal.

A slightly risk-off tone across markets provided the common currency with some support, helping the Euro strengthen against more risk-sensitive counterparts.

Friday’s data flow brought fresh volatility for the Pound. UK retail sales volumes rose 0.5% month-on-month in August, slightly firmer than expected once July’s modest revisions were taken into account. The release initially offered some support for Sterling.

However, the bigger market focus was on public finance data. The Office for National Statistics reported a deficit of £18bn for the month, around £5.5bn larger than the Office for Budget Responsibility’s spring forecast.

According to Lloyds:

“A busy morning already for UK data. The ONS has reported that retail sales volumes in August were up 0.5% m/m at the headline level. This is essentially in line with expectations taking into account modest revisions to July. In the context of the run up to November’s Budget though the August public finances data was more significant. It revealed a deficit (PSNB) of £18bn for the month, some £5.5bn ahead of the OBR Spring forecast.”

They added:

“Taking into account revisions to prior months, where the ONS has conducted a more thorough review, the government’s deficit of £83.8bn is now £11.4bn more than it was expected to be at this point in 2025-26. This is a significant development as previously the deficit was tracking right in line with expectations.”

They continued:

“In addition to the overshoot in borrowing in August, the ONS has engaged in a deeper review of prior months leading to unfavourable revisions. The drift in the public finances versus plan is likely to attract a lot of attention given the focus on Budget constraints.”

And concluded:

“However, in terms of risks to gilt supply things arguably haven’t got marginally much worse. What matters for gilt supply is the government’s cash requirement (CGNCR), rather than the headline borrowing (PSNB) figure, and this has gone from being £9bn worse that planned last month to £10bn this month, in terms of the cumulative 2025-26 position. Nevertheless, the optics are still gloomy.”

GBP/EUR Forecasts: Eurozone PPI in Focus

Looking ahead, the Pound Euro (GBP/EUR) exchange rate is set to be influenced by a fresh round of data from both the UK and the Eurozone.

In the Eurozone, Germany will publish its latest producer price index (PPI). The figure is projected to extend its decline, with forecasts pointing to a drop from –1.5% to –1.8% in August.

If realised, this would mark a sixth consecutive month of falling producer prices in the bloc’s largest economy, potentially dampening demand for the Euro as the week draws to a close.

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TAGS: Pound Euro Forecasts