British Pound to Euro Forecast: Growth Slowdown, Tax Fears Weigh on GBP Outlook

Modified: Friday, 17 October 2025 11:15 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Growth Slowdown, Tax Fears Weigh on GBP Outlook

The Pound to Euro exchange rate (GBP/EUR) held just above 1.15 on Thursday after weaker-than-expected UK GDP data. RBC Capital Markets expects Sterling to drift lower toward 1.1365 by year-end, warning that fiscal tightening and weak growth could limit recovery potential.

GBP/EUR Forecasts: Holds Above 1.15

The Pound gained some ground in US trading on Wednesday and was resilient on Thursday despite disappointing GDP data and on-going concerns over November tax hikes.

Underlying caution is likely to hamper the Pound while Euro-Zone developments will be watched closely with the French government facing two confidence votes on Thursday.

It is expected to survive with Socialist support, but any defeat would risk renewed Euro selling.

The Pound to Euro (GBP/EUR) exchange rate traded around 1.1525 with markets also monitoring global risk conditions closely.

RBC Capital Markets has a year-end GBP/EUR forecast of 1.1365 with an end-2026 forecast of 1.15.

The ONS reported that UK GDP increased 0.1% for August, in line with consensus forecasts, although the July figure was revised down to –0.1% compared with the flash reading of no change.

Production secured a 0.4% gain for the month, but there was no change in services while construction output declined 0.3%.

On a quarterly basis, GDP increased 0.3% compared with the previous 3-month period.

The consumer-facing services sector was notably weak with 0.6% contraction in the three months to August with notable vulnerability in the travel sector.

Deutsche Bank’s chief UK economist Sanjay Raja commented; “the economy is now running at a lower gear after a strong start to the year. We expect some turbulence to continue as we approach year-end. Indeed, the UK economy has yet to see the full ramifications of the US trade war. Budget uncertainty is hitting its peak too – likely dampening discretionary household and business spending.”

According to Danske Bank; “After a strong Q1, the economy has slowed, which is bad news for the Labour government ahead of the November budget, where the fiscal wiggle room is very limited.”

ING noted that government spending has been a key driver for the economy; “Output in government-related sectors has been growing more quickly in annual terms than the wider economy. The effects are even more apparent in the jobs market, where rising government hiring has offset steady falls in private sector employment.”

The bank notes that there will be a negative impact on government borrowing; “In our view, the combination of downgrades to the OBR’s economic forecasts (chiefly productivity), higher gilt yields and policy U-turns leaves a £25bn a year budget hole, relative to the situation at the March Spring Statement.”

The Institute for Fiscal Studies (IFS) is projecting the government will need to raise £22bn to meet the fiscal rules.

This would allow a £10bn headroom, bit the IFS considers there is a strong case to raise more than this to increase the headroom.

According to IFS director Helen Miller “the lack of a bigger buffer brought with it instability, and could leave the chancellor limping from one forecast to the next".

She added; "A key challenge is ensuring that fiscal groundhog day doesn't become a twice-yearly ritual."

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TAGS: Pound Euro Forecasts