British Pound to Euro Forecast: Oil Price Crisis to Shape GBP Outlook

Modified: Saturday, 14 March 2026 14:31 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Oil Price Crisis to Shape GBP Outlook

The Pound to Euro exchange rate (GBP/EUR) slipped back toward 1.1580 ahead of the weekly close, struggling to break above the key 1.1600 resistance level despite continued support from rising UK bond yields.

Pound Sterling has remained resilient against the Euro as markets reassess Bank of England policy expectations following the recent surge in energy prices, although analysts warn that mounting stagflation risks and higher borrowing costs could quickly shift sentiment if UK growth fears intensify.

GBP/EUR Forecasts: Near 5-Week Highs

Higher UK yields are continuing to support the Pound, but the dynamics are liable to shift if UK economic fears intensify.

Sterling overall has remained resilient against the single currency as markets assess the implications of Middle East developments. A shift in Bank of England (BoE) expectations has been a key element for the Pound.

Markets have abandoned calls for a near-term BoE rate cut with the medium-term outlook now in focus.

In February, traders were close to pricing in two rate cuts for 2026, but there has been a notable shift with futures now pricing in just over a 50% chance of a rate hike by year-end.

XTB research director Kathleen Brooks commented on market conditions; “Oil prices remain elevated and bonds remain more sensitive than equities to inflation fears. Interest rate volatility is back, and the futures market is now predicting rate hikes for the UK once more.”

There was renewed selling in bond markets on Thursday with the 10-year yield increasing to 4.67% and close to 5-month highs above 4.70% seen early this week.

Higher yields will potentially underpin the Pound in the short term, but there will also be renewed fears surrounding the outlook for fiscal policy and government borrowing, especially if the economy stalls. In this context, stagflation fears will be a key element

According to Deutsche Bank market strategist Jim Reid; “From a market perspective, the problem is that investors are increasingly pricing in a more protracted conflict that causes extensive economic damage. After all, with no concrete signs of de-escalation yet, that’s keeping oil prices elevated, and raising the risk of a broader stagflationary shock.”

The Euro-Zone economy will also be vulnerable if there is a sustained increase in energy prices, especially for gas.

ING expects pressures can be contained, but the ECB will also be watching the situation closely ahead of next week’s policy meeting.

ING added; “Sounding a bit more hawkish by, for example, stating that the ECB stands ready to act, is monitoring the situation very closely and would not refrain from any pre-emptive rate hikes, looks like the most likely outcome. In this context, we don’t expect Lagarde to repeat the phrase ‘good place’. ”

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TAGS: Pound Euro Forecasts