British Pound to Euro Forecast: GBP Gains as Rate Cut Bets Ease

Modified: Thursday, 26 February 2026 16:31 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: GBP Gains as Rate Cut Bets Ease

The Pound to Euro exchange rate (GBP/EUR) has climbed to one-week highs near 1.1485 as relatively hawkish Bank of England commentary reduced market confidence in an imminent March rate cut.

Sterling has drawn support from policymakers signalling continued caution on inflation, although lingering concerns over the UK labour market and political risks ahead of the Gorton and Denton by-election continue to cap upside potential.

GBP/EUR Forecasts: Near 1-Week Highs

The Pound drew support on Tuesday from relatively hawkish comments from Bank of England members with markets less certain that the central bank will cut interest rates at the March meeting.

The Pound to Euro (GBP/EUR) exchange rate surged to 1-week highs around 1.1485 before consolidating just above 1.1465 with sentiment remaining broadly positive.

There are still some reservations over the Pound’s fundamentals together with a near-term focus on the Gorton and Denton by-election.

According to MUFG, the Pound is still vulnerable; “If the data continues to show the gradual softening of labour market conditions that we have seen for many months now, then we believe a cut is likely. That remains our view and with inflation set to fall to target in May, another cut in June is very likely.”

It added; “So the OIS curve is under priced at this point and we see scope for further GBP underperformance over the coming months.”

In testimony to the Treasury Select Committee, Governor Bailey stated that the next decision was still genuinely open. He added; “The question for me is, have I seen enough further evidence to feel that I’m confident to take that step?”

According to Chief Economist Pill caution is still needed; "It's important that we are not beguiled by the achievement of 2% headline CPI inflation. I think there's an element of us in the past having given more weight to that than perhaps we should have done."

He added; “It remains important to bear down on inflation pressure.”

MUFG commented; “What came across as pretty clear to us is that the hawks who testified in parliament yesterday – Megan Greene and Huw Pill – are not for turning at this stage and we can assume they will continue to resist calls for monetary easing. On the other hand, Alan Taylor will continue to vote favouring monetary easing given he stated that “growing downside risks have materialised”.

The bank, however, considers that MPC member Mann looks to have shifted to a more dovish stance which could be important for the forthcoming decisions.

As far as data is concerned, the CBI retail sales index dipped sharply to -43 for February from -17 previously and compared with consensus forecasts of -27.

Retailers expect sales to decline at a slower rate in March while employment declined at the fastest rate for over two years.

CBI lead economist Martin Sartorius commented; “Retail sales volumes fell at a sharp pace in the year to February, with some firms reporting that the wet weather discouraged shoppers from visiting stores. Soft demand conditions and elevated costs have continued to feed through to gloomy sentiment in the retail and broader distribution sector, prompting many firms to scale back investment plans and headcount.”

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TAGS: Pound Euro Forecasts