Pound Sterling Slides Against Euro and Dollar After Fresh UK GDP Contraction

Published: Sunday, 14 December 2025 14:30 BST - Written by David Woodsmith

STORY LINK Pound Sterling Slides Against Euro and Dollar After Fresh UK GDP Contraction

The Pound to Euro exchange rate (GBP/EUR) slipped toward 1.1400 after UK GDP unexpectedly contracted for a second consecutive month, undermining Sterling sentiment.

The weak data has reinforced expectations of a Bank of England rate cut this week, with markets increasingly confident easing will continue into 2026.

Attention now turns to UK jobs and inflation data for confirmation of the growth slowdown.

GBP/EUR Forecasts: Dip to 1-Week Lows

The Pound was undermined by weaker than expected GDP data on Friday.

The Pound to Euro (GBP/EUR) exchange rate dipped sharply to test 1.1400 from 1.1445 ahead of the data.

MUFG commented; “The pound has gained versus the dollar following the broad-based dollar sell-off but has weakened versus the euro. We would expect that pattern to continue with the pound underperforming within the G10 space.”

The bank has a Q1 2026 GBP/EUR forecast of 1.13.

Markets are even more convinced that the Bank of England (BoE) will cut interest rates on Thursday. The UK jobs and inflation data on Tuesday and Wednesday respectively will also be watched very closely.

The ONS reported that GDP contracted 0.1% for the second successive month in October and compared with consensus forecasts of a 0.1% increase.

There was a 1.1% rebound in the industrial sector, but the services sector contracted 0.3% on the month while construction output declined 0.6%.

Deutsche Bank chief UK economist Sanjay Raja noted the poor start to the fourth quarter and added; “for the first time this year, we see some meaningful risk of a marginal quarterly contraction in real GDP.”

There will be speculation that budget uncertainty was a key culprit behind the poor monthly performance.

Berenberg, however, is not convinced; “The more recent survey data suggests that the malaise has continued since. We suspect that deteriorating fundamentals rather than a Budget-related setback in confidence are to blame, so a recovery seems unlikely in the near term.”

It added; “This should help ensure that inflation drops swiftly in 2026, allowing the Bank of England to cut bank rate from 4.00% today to 3.00% by next July.”

According to Raj Badiani, economics director at S&P Global Market Intelligence; “Poor real GDP developments for the fourth consecutive month in October shows the impact of poor domestic demand conditions and higher payroll taxes on businesses, driven by fiscal policy changes and higher US tariffs.”

Following the data, markets are even more confident that the Bank of England will cut interest rates at the December meeting as growth concerns increase.

Goldman Sachs expects a 6-3 vote to cut rates

The latest UK labour-market and inflation data, together with the PMI business confidence data, will be released on Tuesday and Wednesday.

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TAGS: Pound Euro Forecasts