British Pound to Euro Forecast: Energy Shock Keeps GBP Below 1.15

Modified: Wednesday, 4 March 2026 19:01 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: Energy Shock Keeps GBP Below 1.15

The Pound to Euro exchange rate (GBP/EUR) struggled to build on early-week gains and remained capped below the 1.15 resistance level, as escalating Middle East tensions and surging energy prices dominated global markets.

While the UK Spring Statement had limited market impact, a sharp rise in gas prices and higher Eurozone inflation have complicated the outlook for central bank policy, leaving GBP/EUR direction heavily influenced by shifting interest-rate expectations and geopolitical risk.

GBP/EUR Forecasts: Held Below 1.15

After rallying strongly on Monday, the Pound to Euro (GBP/EUR) exchange rate was unable to make further headway on Tuesday and settled around 1.1470.

MUFG is still forecasting a GBP/EUR slide to 1.11 by the end of 2026.

With market attention focussed firmly on developments in Iran, Chancellor Reeves’ Spring Statement had little overall impact, especially with the government happy to see a low profile amid high volatility across asset prices.

Higher than expected Euro-Zone inflation data had some impact protecting the Euro while the further dramatic spike in gas prices had a notable negative impact on both the Pound and single currency.

The FTSE 100 index posted a sharp loss of around 2.7% while there was renewed selling in gilts with the 10-year yield around 4.50% compared with lows near 4.20% last week.

Any further spike in bond yields would tend to undermine the Pound.

There were no policy updates in the Spring Statement with the focus on updated forecasts from the Office of Budget Responsibility (OBR).

The 2026 GDP growth forecast was revised down to 1.1% from 1.4% previously. There were slight upgrades to the 2027 and 2028 forecasts to 1.6% from 1.5%.

Unemployment is forecast to increase to 5.3% from the 4.9% forecast in November.

According to the OBR, there will be fiscal headroom of £23.6bn by 2029/30 compared with the November estimate of £21.7bn.

The DMO is now expecting to issue £252.1bn in gilts during 2026/27 compared with an investment bank poll of around £245.

Given events in the Middle East with a spike in energy prices, together with a jump in uncertainty, there has been a notable shift in pricing for the Bank of England (BoE).

Markets are now pricing in around a 20% chance of a cut at the March meeting compared with around 75% at the end of last week.

Capital Economics' chief UK economist Paul Dales expects the BoE will have to be cautious; "We think that in all scenarios the Bank of England will be more sensitive to the upside risks to inflation than some other central banks."

MUFG commented; “We assume the BoE will hold off from a cut this month due to higher energy prices stemming from Middle East risks, before delivering two further cuts in Q2 and Q3.”

As far as Euro-Zone data is concerned, the headline CPI inflation rate increased to 1.9% for February compared with consensus forecasts of no change at 1.7% while the core rate increased to 2.4% compared with expectations of no change at 2.2%.

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TAGS: Pound Euro Forecasts