Pound to Euro Forecast: Warning of GBP Slide Below 1.1400

Modified: Thursday, 2 October 2025 11:00 BST - Written by Frank Davies

STORY LINK Pound to Euro Forecast: Warning of GBP Slide Below 1.1400

Support for the euro is firming as Commerzbank points to German fiscal stimulus driving a rebound in Euro-Zone growth. Against that backdrop, the Pound to Euro (GBP/EUR) exchange rate is struggling near 1.1450, with Lloyds Bank cautioning that fiscal stress may drag Sterling below 1.1400 in the months ahead.

GBP/EUR Forecasts: Unable to Make Headway

The Pound to Euro (GBP/EUR) exchange rate has avoided a fresh decline to 2-month lows, but has struggled to make any headway and is trading just above 1.1450 with some support from gains in UK equities.

Lloyds Bank sees scope for GBP/EUR to dip below 1.1400 amid concerns surrounding UK fundamentals.

Markets will continue to monitor UK bond markets closely, especially given the Pound sensitivity to fiscal stresses.

The 10-year yield is currently trading around 4.72% from 4.74% at the open. There are concerns that the US shutdown will put upward pressure on yields and potentially trigger a fresh sell-off in UK bonds.

There have also been strong indications that the government will remove the 2-child benefit cap in the November budget which would put upward pressure on spending. This would increase pressure for tax hikes to enable the government to meet fiscal rules.

There remains a risk that prolonged tax chatter will undermine activity in the short term.

Lloyds Bank considers that the government will be unable to escape from the straitjacket and Pound losses could be a release valve; “Given the constraints that leaves us looking at other potential adjustment paths. The currency stands out as the most liable level.”

In contrast, Commerzbank economists expect Euro-Zone support from German fiscal policy; "We remain optimistic over the medium term that German fiscal stimulus will have a material impact on economic growth, with positive spillover effects for the rest of Europe.”

It added; “Economic incentives are clear given Germany’s fiscal space and lack of growth in recent years; political incentives stem from the threat from the far-right in next year’s regional elections."

The headline Euro-Zone consumer inflation rate increased to 2.2% for September from 2.0% and in line with consensus forecasts while the core rate was unchanged at 2.3% and also in line with expectations.

There will be expectations of a stable ECB policy in the short term, underpinning the Euro.

Elsewhere in the UK, Nationwide reported that UK house prices increased 0.5% in September after a 0.1% decline the previous month with the annual increase at 2.2% from 2.1%.

Nationwide's Chief Economist Robert Gardner commented; “Despite ongoing uncertainties in the global economy, underlying conditions for potential home buyers in the UK remain supportive.”

The UK PMI manufacturing index was unrevised at 46.2 for September and confirmed at a 5-month low.

Rob Dobson, Director at S&P Global Market Intelligence commented; “Manufacturers are facing an increasingly challenging environment, with intakes of new business and levels of production hit by weak market sentiment, a dearth of new export work and a high-cost environment exacerbated by tax and labour cost rises.”

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TAGS: Pound Euro Forecasts