British Pound to Euro Forecast: UK Stagflation Risks Rise

Modified: Friday, 27 March 2026 08:31 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: UK Stagflation Risks Rise

The Pound to Euro exchange rate (GBP/EUR) held just above 1.1550, but downside pressure is building as rising stagflation risks in the UK begin to weigh on Sterling sentiment.

With weaker growth forecasts, rising inflation expectations, and deteriorating consumer confidence, markets are increasingly concerned that the Bank of England faces a difficult trade-off that could limit the Pound’s resilience.

GBP/EUR Forecasts: Battling to Resist Losses

The Pound-to-Euro rate has drifted lower on Thursday, although it has held just above 1.1550 and is still proving broadly resilient in global markets.

Risk appetite dipped again with fresh losses for equities while oil prices increased on the day.

The Bank of England remains in a very difficult place while developments in the UK economy will be increasingly important. At this stage, traders are still pricing in over a 60% chance of a rate hike at the April meeting.

ING commented; “We still see some upside risks for EUR/GBP due to the larger room for dovish repricing in a de-escalation scenario for the GBP curve. A move past 0.870 in the coming weeks remains our baseline. (GBP/EUR losses to below 1.1500)

There has been evidence of a dip in UK confidence. According to the British Retail Consortium (BRC) consumer confidence slumped to -53 for March from -20 the previous month and the weakest reading since the survey started two years ago.

BRC chief executive Helen Dickinson commented; “Consumer confidence collapsed as the Middle East conflict raised the prospect of higher inflation in the months ahead.”
She added; “Just as the economy was beginning to turn a corner on inflation, the rise in global energy prices is particularly unwelcome for businesses and families.”
According to MUFG; “Higher inflation, weaker growth and higher mortgage costs will likely see consumers retrench and prepare for the worst. Fuel Finder UK indicates a 13% increase in petrol prices over the last 30 days highlighting another hit to real incomes that is already under way.”

The OECD has downgraded its 2026 GDP growth forecast to 0.7% from 1.2% previously while maintaining the 2027 forecast at 1.3%.

The 2026 inflation forecast has been increased to 4.0% from 2.5% previously with the 2027 expectation revised to 2.6% from 2.1%.

According to the OECD; “A prolonged conflict could trigger "significant energy shortages" globally, it warned, while if the sharp rise in fertiliser prices is sustained crop yields will be impacted and food prices will soar next year.”

The forecasts of weaker growth and higher inflation will inevitably trigger a major headache for the Bank of England (BoE).

In comments on Thursday, BoE member Breedon noted inflation risks, but commented that firms and workers are likely to have less price and wage bargaining power so second-round effects are less likely. She added that; “we will know more on the balance of risks and scale and duration of the shock by the April meeting.”

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TAGS: Pound Euro Forecasts