Pound to Euro Forecast: GBP to Stay Fragile Ahead of Budget

Modified: Thursday, 20 November 2025 09:15 BST - Written by David Woodsmith

STORY LINK Pound to Euro Forecast: GBP to Stay Fragile Ahead of Budget

The Pound to Euro exchange rate (GBP/EUR) drifted lower on Wednesday, with Sterling unable to find support from the UK’s latest inflation figures as markets continued to price in a December Bank of England (BoE) rate cut.

Risk appetite remained fragile across global markets, limiting potential support for the Pound. The FTSE 100 struggled to recover Tuesday’s sharp losses, while UK bond markets saw only a muted reaction, with the 10-year gilt yield holding just below 4.55%.

The Pound to Euro exchange rate edged slightly lower, trading just under the 1.1350 level, as investors also kept a close eye on upcoming fiscal policy developments. According to ING, “We expect sterling to remain fragile heading into the Budget.” Danske Bank, meanwhile, forecasts a drop toward 1.11 on a six-month horizon.

The headline UK inflation rate eased to 3.6% in October, down from 3.8% and in line with market expectations. Some investment banks had anticipated a deeper slowdown to 3.5%. Core inflation also dipped modestly, falling from 3.5% to 3.4%.

Domestic energy prices registered a slight uptick in October, but a much larger rise in the same month last year helped pull the annual rate lower. A drop in hotel prices was offset by an increase in food inflation, which rebounded to 4.9% from 4.5%.

Goods inflation cooled to 2.6% from 2.9%, while services inflation eased from 4.7% to 4.5%.

ING noted: “We doubt there’s anything that will shake the conviction of the Bank’s doves, who argue immediate easing is necessary to offset potential weakness emanating from the jobs market.”

ING added that the data is unlikely to shift sentiment among most BoE policymakers: “The bottom line here is that there’s unlikely to be anything in this data that will change the minds of many voters on the BoE committee. That means the decision continues to hinge on Governor Andrew Bailey… we think he will still tip the balance in favour of a cut in December.”

MUFG echoed this view, commenting: “The data today leaves us comfortable with our view of a December rate cut and this report provides important reassurance of the BoE projection that the inflation rate likely peaked in September at 3.8%, 0.2ppt lower than expected.”

Danske Bank also stressed that, “Following weaker labour market data and growth, a December cut from the Bank of England is looking increasingly likely.”

Fiscal policy developments remain a key driver in the near term. MUFG added a note of caution: “Front-end yields in the UK can fall further but not be much ahead of the budget and two more key data releases in December. That will limit GBP reaction ahead of the budget next Wednesday.”

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TAGS: Pound Euro Forecasts