Pound-to-Euro Forecast: Weak UK Economy Strengthens Case for BoE Rate Cut

Modified: Thursday, 16 October 2025 11:45 BST - Written by Frank Davies

STORY LINK Pound-to-Euro Forecast: Weak UK Economy Strengthens Case for BoE Rate Cut

The Pound to Euro exchange rate (GBP/EUR) is likely to stay under pressure in the coming months, according to major banks, with MUFG and Deutsche Bank both warning that a dovish Bank of England stance could push GBP/EUR lower toward 1.11 by late 2026.

GBP/EUR Forecasts: Held Below 1.15

The Pound Sterling dipped sharply to lows near 1.1460 against the Euro on Tuesday and was unable to regain significant ground on Wednesday and traded around 1.1470.

GBP was undermined by increased speculation that economic weakness would trigger earlier-than-expected Bank of England rate cuts.

The Euro also secured net support from increased hopes that the French government would survive a no-confidence vote.

According to MUFG; “We maintain our view of a gradual increase in EUR/GBP into year-end as market positioning for a BoE rate cut increases.”

It forecasts losses to 1.11 by the third quarter of 2026.

French Prime Minister Lecornu announced a major concession on the budget with a proposal to delay pension reform until 2027 which was welcomed by the Socialist Party.

Rabobank asked; “Has France now turned le corner? Not yet. The hard-left and far-right have already filed censure motions that Lecornu needs to survive. By suspending pension reform, he may have secured Socialist support, but he now risks losing votes from centre-right Horizons or Republican MPs who don’t toe the party line.”

The bank added; “it’s worth noting that passing the budget will be harder than surviving a confidence vote. After all, if the government sticks to its pledge of not invoking Article 49.3, a majority of the French MPs must actually vote for the budget.”

Rabobank also noted the importance of longer-term pressures; “Without offsetting measures, which, as this process shows, are difficult to achieve, France’s debt ratio would fail to stabilise. It’s a key reason why markets responded cautiously.”

There were notably dovish comments from Bank of England MPC committee member Taylor on Tuesday.

According to Taylor; “The risk [of a hard landing] is rising. Weak demand at home can lead to a more forceful downturn, where recession dynamics start to kick in that can be very difficult to contain or even reverse.”

Taylor and Swati Dhingra have consistently voted for more aggressive rate cuts, but MUFG sees scope for a shift on the committee.

It added; “Taylor and Swati remain the lone doves on the MPC for now but assuming inflation slows in October/November data and wages do not rebound, the justification for a rate cut will likely grow.”

MUFG noted the market reaction to Tuesday’s jobs data with sharp Pound losses. It added; “So while we believe there was some cherry-picking of the jobs data yesterday, we concur with the overall direction of the rates move given we see scope for the BoE to be in a position to cut in December.”

Deutsche Bank added; "We continue to think that a (fourth quarter) rate cut may be underpriced by markets.”

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TAGS: Pound Euro Forecasts