Pound-to-Euro Forecast: GBP Rebounds vs EUR After Hawkish BoE Cut

Modified: Friday, 19 December 2025 09:16 BST - Written by Tim Boyer

STORY LINK Pound-to-Euro Forecast: GBP Rebounds vs EUR After Hawkish BoE Cut

The Pound to Euro exchange rate (GBP/EUR) rebounded above 1.1430 after the Bank of England delivered a less dovish-than-feared rate cut, with a narrow 5–4 vote signalling caution over further easing.

Sterling gains were capped, however, after the ECB held rates and upgraded its growth outlook.

Markets now see reduced odds of multiple BoE cuts next year, offering near-term support but leaving longer-term risks intact.

GBP/EUR Forecasts: ECB Stance to Curb Gains

After trading just below 1.1400 ahead of the Bank of England (BoE) policy decision, the Pound Serling to Euro fx rate jumped to above 1.1430 after a more hawkish than expected rate cut.

The Pound was unable to make further headway after the ECB held interest rates at 2.0% and upgraded the Euro-Zone growth outlook.

According to ING; “Perhaps a slightly less dovish BoE rate cut than expected has triggered a modest relief rally in sterling.”

There is likely to be tough resistance around 1.1465.

ING is still bearish on the longer-term Pound view and expects GBP/EUR losses to 1.11 next year; “We see no reason to change our forecast calls of EUR/GBP trending gently higher through 2026 towards the 0.90 area, with some extra upside risks around UK local elections in May.”

The BoE Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 3.75%, in line with strong consensus forecasts.

There was a narrow 5-4 vote for the decision as Mann, Lombardelli, Greene and Pill voted against the move.

Dhingra, Taylor, Ramsden and Breedon voted to cut rates for the second successive meeting and the key voter was Governor Bailey who switched sides and voted for a cut this time around.

There had been some speculation that there would be a more decisive vote in favour of a cut and some talk that some members could dissent and call for a larger rate cut at this meeting, but neither materialised.

Markets are less confident that there will be two further BoE rate cuts next year and gilt yields increased which underpinned the Pound.

According to the bank; “the risk from greater inflation persistence has become somewhat less pronounced since the previous meeting.”

It added; “On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call.

According to Peel Hunt Chief Economist Kallum Pickering, the BoE expects that inflation will decline slightly faster than expected which will give scope for further cuts.

He added; “I don’t think the Bank of England is going to be willing to tolerate slow growth under its potential estimate once inflation is clearly on track to hit 2% and we're getting to that point faster due to these downside surprises to inflation."

Danske Bank commented on the rate outlook; “We think Bailey will take a cautious approach and listen to both sides when timing the next rate cut and that a majority will vote for a final rate cut at the April meeting.”

ING noted the importance of position adjustment and potential for short covering which could underpin the Pound in the near term; “Data published last night from the CFTC, covering activity after the November budget, shows asset managers still running a short position worth 38% of open interest (total positioning). Those levels remain on par with the shortest sterling positioning we have seen over the last five years.”

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TAGS: Pound Euro Forecasts