Pound-to-Euro Budget Forecast: GBP Upside Limited as UK Budget Looms

Modified: Monday, 24 November 2025 16:32 BST - Written by Frank Davies

STORY LINK Pound-to-Euro Budget Forecast: GBP Upside Limited as UK Budget Looms

UPDATE: The Pound to Euro exchange rate (GBP/EUR) eased back toward €1.1357 on Monday as traders shifted their attention to this week’s Autumn Budget, with the currency increasingly trading on fiscal credibility rather than last week’s mild rebound.

Markets are questioning whether the Chancellor will deliver a package that reassures investors about the UK’s medium-term finances.

Barclays' economists note that much of the expected tightening appears heavily back-loaded, raising doubts over how much of it will ever be implemented.

The bank argues that a clearer, more front-footed plan could help unwind part of the fiscal risk premium still embedded in the Pound, but warns that political uncertainty keeps the near-term balance of risks tilted to the downside.


Image: GBP to EUR exchange rate chart shows medium-term downtrend

GBP/EUR Forecasts: Budget Nerves

The Pound to Euro exchange rate (GBP/EUR) edged up to 1.1385 last week, but the immediate focus now shifts to the UK budget and the risk of confidence shocks.

Markets expect sizeable tax measures, with analysts warning that BoE rate-cut expectations could weigh on Sterling.

Consensus forecasts span a wide range, but sentiment remains cautious as fiscal signals take centre stage.

Danske Bank forecasts that the Pound to Euro rate will slide to 1.11 on a 12-month view.

RBC Capital Markets forecasts a tentative net gain to 1.15 by the end of 2026.

GBP/EUR was able to secure a net gain to 1.1385 late in the week with some short covering in evidence.

The immediate focus will be on the UK budget and the impact on confidence. There are expectations of significant tax hikes with the government still committed to meeting the fiscal rules.

ING commented; “While a larger fiscal hike could take a little more of the risk premium out of the UK Gilt market, it could well see the market pricing the BoE policy rate under the 3.25% neutral rate next year and weighing on sterling.”

The bank overall expects the budget will be neutral to slightly negative for the Pound.

It added; “We find it highly unlikely that Chancellor Reeves would misread the mood of the bond market and deliver a budget which prompts a ‘Sell UK’ mentality.”

RBC still expects Pound support on yield grounds; “While high yields can work against sterling if it sparks concerns about fiscal sustainability, it also makes GBP an attractive target currency for carry trades.”

Monetary policy trends will also inevitably be important.

The latest UK inflation data was in line with expectations at the headline rate declined to 3.6% from 3.8% while the core rate edged lower to 3.4% from 3.5%.

There was a 1.1% slide in October retail sales volumes and, although the PMI business confidence data recorded a slight improvement for manufacturing, the services-sector index dipped to a 7-month low only just above the 50.0 level.

Markets are very confident that the Bank of England will cut rates in December.

Danske Bank expects net GBP/EUR losses as the Euro-Zone out-performs the UK and added; “The key risk to seeing EUR/GBP trade substantially higher than our forecast is a sharp sell-off in global risk and/or renewed focus on the UK’s fragile fiscal position.”

UBS commented on the relative policy outlook; “we do not expect the ECB to adjust policy rates again anytime soon. This cannot be said about the UK, we now expect a December cut, followed by two more cuts in the first half of 2026 to reach a terminal Bank Rate of 3.25.”

According to the bank; “We expect this to decrease GBP’s carry advantage against the EUR over time and weigh on the currency pair in 2026.”

It forecasts GBP/EUR at 1.1240 on a 12-month view.

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TAGS: Pound Euro Forecasts