British Pound to Euro Forecast: Tax and Borrowing Concerns Pressure GBP/EUR Outlook

Modified: Tuesday, 23 September 2025 10:15 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Tax and Borrowing Concerns Pressure GBP/EUR Outlook

The Pound to Euro exchange rate (GBP/EUR) remained under pressure on Monday, trading just above €1.1470 and close to the six-week lows near €1.1450 recorded last week.

While some analysts see scope for near-term resilience, underlying fiscal worries continue to weigh heavily on Sterling’s outlook.

ING suggested the pair may stabilise in the short run, noting that “for this week – barring major divergence in PMIs – EUR/GBP may not drift much higher given the lack of convincing drivers to sell the expensive pound.”

From a longer-term perspective, however, MUFG warned that fiscal concerns are likely to dominate and forecast a slide in GBP/EUR towards €1.1240.

As far as data is concerned, the main focus this week will be on Tuesday’s PMI business confidence releases. Consensus forecasts point to little change in both the UK and Eurozone, but the figures will be key in assessing the growth outlook on both sides of the Channel.

Looking specifically at the UK, confidence in the growth outlook remains tied to fiscal policy. While recent services data has offered some reassurance, underlying fiscal fears are proving harder to shift.

ING commented:

“The problem is that, by our maths, the government needs to find at least £30bn/year to retain the same fiscal 'headroom' it had in the spring. That’s down to both forecast downgrades and spending pressures. It’s going to be hard to raise that sort of cash without lifting one of the major taxes, like income tax or National Insurance.”

MUFG added:

“the release of further disappointing UK public finances data will add to concerns over the need for the government to outline significant fiscal tightening measures in the Autumn Statement set to be delivered in late November.”

There will also be an impact on monetary policy. ING added:

“The temptation to play around with the fiscal rules – thereby lifting borrowing yet avoiding tough decisions on tax – is something investors are closely monitoring. But assuming we do get big tax hikes, then that’s a decent reason to think the Bank of England isn’t quite done with rate cuts.”

MUFG take a similar view:

“The looming prospect of further tax hikes will dampen the outlook for growth in the UK and encourage the UK rate market to price in more BoE easing for next year.”

Positioning data underlines the uncertainty. The latest COT report from the CFTC showed short Pound positions dropping sharply to 6,600 from 33,600 the previous week, suggesting heavy short-covering. However, the price action has raised concerns that underlying selling pressure on Sterling is still intensifying.

GBP/EUR Forecasts: PMIs and Fiscal Policy in the Spotlight

Looking ahead, Tuesday’s PMI releases will be key for short-term direction in GBP/EUR, while investors remain focused on the UK’s fiscal trajectory and the potential for further tax hikes. With fiscal concerns unlikely to ease quickly, the Pound could struggle to escape from its current downtrend.

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TAGS: Pound Euro Forecasts