Pound-to-Euro Forecast: GBP Struggles as UK Budget Concerns Grow

Modified: Sunday, 26 October 2025 20:30 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: GBP Struggles as UK Budget Concerns Grow

The Pound to Euro exchange rate (GBP/EUR) came under renewed pressure on Friday despite stronger-than-expected UK data, as investors focused on looming tax increases and global risk nerves.

The Pound Sterling dropped to three-week lows below 1.1470 against the Euro before finding tentative support near 1.1480.

GBP/EUR Forecasts: Sterling Vulnerable Ahead of Budget Test

The latest UK figures provided some relief, but analysts warn that fiscal uncertainty and shifting Bank of England expectations could keep Sterling on the defensive in the weeks ahead.

The UK data on Friday was relatively encouraging, but the Pound failed to secure any lasting benefit and the Pound to Euro (GBP/EUR) exchange rate dipped to 3-week lows below 1.1470 before stabilising.

Crucial support is in the 1.1420/30 area with Sterling vulnerable if this area breaks.

The Pound was hampered by media chatter that the Chancellor Reeves would increase income tax in the November budget while the Euro-Zone data was stronger than expected.

The UK manufacturing PMI business confidence index improved significantly to a 12-month high of 49.6 for October from 46.2 previously and well above consensus forecasts of 46.6 while the services-sector index improved only marginally to a 2-month high of 51.1 from 50.8.

There was a slowdown in job losses across the economy while the rate of increase in output charges slowed to a 4-month low.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “October’s flash UK PMI survey brings hope that September was a low point for the economy from which business conditions are starting to improve.”

He still expressed caution over the outlook; "Companies are clearly treading cautiously in terms of spending, investment and hiring ahead of the upcoming Budget, the outcome of which has the potential to once again sway the business mood in the months ahead."

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Elsewhere, UK retail sales volumes increased 0.5% for September compared with consensus forecasts of a 0.2% decline and following a revised 0.6% gain the previous month with consumers on a gold-buying binge.

ONS senior statistician Hannah Finselbach commented; “Retail sales rose quite strongly in the latest quarter and were at their highest level since summer 2022.

She added; “Retail sales also grew over the month of September, with tech stores seeing a notable rise in sales, while online jewellers reported strong demand for gold.”

Deloitte head of retail Oliver Vernon-Harcourt commented; “There are signs that big ticket purchases are back on the cards for some, with an uptick in the sale of tech like computers and phones, as well as household goods and furniture. This indicates that budgeting for major purchases is becoming more of a priority for consumers.”

The Euro-Zone manufacturing index edged higher to a 2-month high of 50.0 from 49.8 and just above consensus forecasts while the services sector strengthened to a 14-month high of 52.6 from 51.3 the previous month.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “France is increasingly becoming a drag on the eurozone economy. As a result, economic growth in the eurozone, even though accelerating a bit, has been much weaker than it otherwise could have been.”

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TAGS: Pound Euro Forecasts