British Pound to Euro Forecast: GBP/EUR Below 1.14 After Budget Bounce

Modified: Tuesday, 2 December 2025 09:01 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: GBP/EUR Below 1.14 After Budget Bounce

The Pound to Euro exchange rate (GBP/EUR) slipped back under 1.14 after Friday’s four-week highs, as weaker risk appetite and renewed fiscal doubts weighed on Sterling.

Markets remain focused on gilt yields and UK creditworthiness, with BoE December cut expectations limiting upside.

The next direction hinges on whether bond markets stabilise and short covering resumes.

GBP/EUR Forecasts: Back Below 1.1400

The Pound to Euro rate hit 4-week highs just above 1.1430 on Friday, but lost ground on Monday with a retreat to just below 1.1380.

Risk appetite was weaker on Monday which sapped potential support for the Pound.

Danske Bank does not expect sustained weakness in equities at this stage; “in an environment with broadly supportive macro fundamentals, it rarely pays to chase weakness, and equity drawdowns tend to stall around the 5% mark.”

There were also reservations surrounding the underlying budget position given that the ability to meet longer-term fiscal goals will rely on unrealistic spending assumptions and tax hikes late in the parliament.

The 10-year yield was slightly higher at 4.48% from 4.45% on Friday.

According to Credit Agricole; “The oversold GBP should therefore continue to take its cue from gauges of the UK’s creditworthiness and the price action in the gilt markets. Evidence that both UK sovereign CDS spreads and gilt yields continue to subside could encourage further short covering in the FX markets.”

There are also underlying concerns surrounding the growth outlook and strong expectations that the Bank of England will cut interest rates in December.

George Vessey, lead FX and macro strategist at Convera commented; "Sterling's post-budget rise has the hallmarks of a relief rally rather than the start of a sustained trend."

KPMG forecasts that UK GDP growth will slow to 1.0% for 2026 from 1.4% with higher unemployment.

According to KPMG chief economist Yael Selfin; “The outlook for growth in 2026 is subdued, reflecting the impact of a cooling labour market and weak household spending.”

She did, however, note; “there are pockets of strength emerging in the form of data infrastructure and green energy investment.”

Geo-political developments will be watched closely. ING commented; “Negotiations on a Ukraine peace deal have somewhat stalled in the past few days, but US special envoy Steve Witkoff’s trip to Russia this week has some potential of leading to a breakthrough.”

UK mortgage approvals declined slightly to 65,000 for October from 65,600 the previous month, although slightly above consensus forecasts while there was a decline in consumer credit growth to £1.1bn from £1.4bn the previous month.

RSM UK chief economist Thomas Pugh commented; “The drop in consumer credit growth, mortgage approvals and net finance raised by private corporations suggests that households and firms were easing back on borrowing and major transactions ahead of last week’s budget.”

He added; “This will probably have been even worse in November as speculation reached fever pitch, but given the lack of any significant tax increases next year activity may bounce back in December and into next year.”

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TAGS: Pound Euro Forecasts