British Pound to Euro Forecast: GBP/EUR at 4-Week Best After Budget

Modified: Thursday, 27 November 2025 09:05 BST - Written by Ben Hughes

STORY LINK British Pound to Euro Forecast: GBP/EUR at 4-Week Best After Budget

The Pound-to-Euro exchange rate (GBP/EUR) climbed to 1.1420 after sharp budget-day volatility, supported by a drop in gilt yields and signs of short-covering.

Analysts see room for modest relief gains if fiscal plans pass credibility tests, though longer-term concerns over growth and back-loaded tightening remain.

Markets now weigh whether today’s optimism can survive deeper scrutiny of the OBR forecasts.

GBP/EUR Forecasts: Strengthen to 4-Week Highs

After a dip to 1.1350 after the UK budget details were leaked early, the Pound to Euro rate has rallied to 4-week highs at 1.1420.

There was very choppy trading in the Pound and bond market after the OBR released budget details early, but the 10-year yield dipped to below 4.45% which helped underpin Pound sentiment.

MUFG sees scope for modest Pound relief gains; “a budget in line with expectations that doesn’t include any nasty surprises and is reasonably credible could prompt a reversal of recent market moves and GBP shorts are squeezed.”

According to HSBC; “We look for GBP to strengthen if, as we expect, the Autumn budget clears the credibility test.”

BBH does not expects Pound gains to hold; “we expect GBP to keep underperforming most major currencies. Contractionary UK fiscal policy and disappointing domestic economic activity will leave room for the Bank of England to deliver more easing than is currently priced in.”

According to the OBR, the government announced tax increases of £26.1bn over the next five years

The largest tax hike was a freezing of personal tax allowances for a further three years to 2030/31.

Welfare spending will increase with the two-child cap on welfare benefits scrapped.

The government borrowing requirement estimate for 2025/26 has been increased to £138.3bn from the March estimate of £117.7bn.

Over the medium term, the budget deficit is forecast to decline to 4.5% of GDP in 2025/26 to 1.9% in 2030/31.

The Office for Budget Responsibility (OBR) lowered the medium-term UK productivity growth forecast to 1.0% from 1.3% previously and average GDP growth has been lowered to 1.5% from the 1.8% projected in March.

Danske Bank commented on the potential reaction; “If she delivers a larger than anticipated headroom and a larger degree of fiscal tightening this would be supportive for Gilts and could offer short-term relief for GBP FX. Over time, however, we think this would act as a negative factor for GBP FX as it puts pressure on the growth outlook.”

The Treasury announced a target of £304bn for gilts sales in 2025/26 compared with expectations of £308bn.

XTB research director Kathleen Brooks considers that the growth outlook will be crucial and added; "Thus, the OBR’s forecasts alongside the Chancellor’s message will be scrutinised to see the trajectory of the UK economy. If the outlook is weak, then the market reaction could be brutal, and the pound may come under downward pressure."

ING discussed underlying Pound risks; “A much worse scenario for GBP where budget announcements don’t convince markets that the fiscal path is sustainable. That could shape into an uncontrolled selloff in gilts and sterling.”

The bank also noted the possibility of a more favourable market reaction; “We think the room for sterling to appreciate today is narrower, although a scenario where markets price out fiscal risk but aren’t convinced the BoE will be able to cut rates should send EUR/GBP moderately lower.

Neil Wilson, Uk Investor Strategist, Saxo Markets, London:

"Here is the key to why markets might see this budget as lacking credibility – the direct effects of budget policies increase borrowing by 6 billion pounds next year but reduce it by 15 billion pounds in 2029-30.

Evelyne Gomez-liechti, Multi-asset Strategist Global Markets, Mizuho International, London:

"The problem is this budget has back-loaded most of the fiscal tightening and for what matters, has near-term fiscal loosening.

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TAGS: Pound Euro Forecasts