British Pound to Euro Forecast: GBP/EUR Holds 5-Week Rally but Outlook Divided

Modified: Monday, 8 December 2025 07:01 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: GBP/EUR Holds 5-Week Rally but Outlook Divided

The Pound to Euro exchange rate (GBP/EUR) traded just above 1.1450 after a strong weekly advance, supported by fiscal relief and lighter short positioning.

While some banks see scope for gains toward 1.19, others warn that political risks, soft UK growth and looming BoE cuts keep the medium-term bias negative.

Whether the Pound Sterling can extend its rebound hinges on how quickly rate expectations stabilise.

GBP/EUR Forecasts: Fiscal all clear?

Rabobank forecasts that the Pound to Euro (GBP/EUR) exchange rate will retreat to 1.1270 on a 12-month view.

Rabobank commented; “Against the backdrop of potential political stress, below average UK GDP growth and BoE rate cuts we continue to favour a slow upward grind in EUR/GBP (GBP/EUR losses).

Bank of America, however, forecasts that GBP/EUR will strengthen to 1.19 at the end of next year.

GBP/EUR secured significant net gains on the week to 5-week highs just above 1.1450.

Fiscal policy has been a key focus with markets relatively calm in response to tax increases in the late-November budget.

According to Bank of America; “The Chancellor has reinforced the commitment to fiscal rules and raised the headroom. These are important anchors which should lead to a relief rally in GBP as the release valve of event risk has passed.”

MUFG added; It has encouraged a lightening of short pound positions as the fiscal and political risk premium priced into the pound has eased in the near-term. Implied pound volatility has dropped sharply reflecting less investor concern over a sharper sell-off now the Budget has passed.

Barclays looks at the long-term perspective; “The budget generates scope for an, at least partial, unwind of the pound's risk premium, in our view. Policy stability ahead of the crucial local elections in May 2026 is a pre-condition for a more lasting rebound.”

Rabobank did note some concerns; “Business groups have been pushing back by criticising Reeves for not providing more incentives for private sector investment and, following the budget, the Chancellor’s own popularity ratings remain very low.”

As far as monetary policy is concerned, there are strong expectations that the Bank of England will cut rates again at the December meeting.

Rabobank commented; “Looking ahead, market expectations of a December BoE rate cut have been building and this is set to prevent post budget relief from garnering too much steam.”

The bank also expects further cuts next year; “The BoE is expected to cut rates further into 2026 on the assumption that UK CPI inflation will continue to trend lower. Insofar as the ECB has likely ended its rate cutting cycle, this should keep GBP on the defensive vs. the EUR well into next year.”

Credit Agricole is positive on the Pound; “The GBP could benefit from a more resilient UK economic outlook and less aggressive BoE cuts despite looming fiscal headwinds.”

Bank of America considers that rate cuts are priced in. “The adjustment in UK rates is potentially at an end, assuming a 3.25% terminal rate. This allows GBP to recouple to its traditional anchors as risk premium is priced out.”

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TAGS: Pound Euro Forecasts