Pound-to-Euro Forecast: GBP Near 1.16 Ahead of UK May Election Risk

Modified: Monday, 4 May 2026 12:36 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: GBP Near 1.16 Ahead of UK May Election Risk

The Pound to Euro exchange rate (GBP/EUR) is holding near 1.1580 after briefly touching 6-week highs above 1.16, as markets weigh central bank signals against rising political uncertainty in the UK.

While the Bank of England decision offered near-term support to Sterling, looming UK elections and shifting rate expectations from both the BoE and European Central Bank are keeping the outlook finely balanced.

GBP/EUR Forecasts: Uncertainty dominates

Deutsche Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will slide to 1.11 by the end of 2026.

Despite near-term vulnerability, Bank of America still sees scope for gains to 1.19 at the end of the year.

Near-term political developments and Bank of England policies will remain key elements.

GBP/EUR hit 6-week highs fractionally above 1.16 after the Bank of England policy decision before trading around 1.1580.

On a near-term view, political developments will be important. Local elections in England, together with Scottish and Welsh assembly elections will be held on May 7th.

Prime Minister Starmer remains in a very vulnerable position and heavy defeats for Labour would increase speculation over a near-term challenge.

Deutsche Bank commented; “The prospect of political uncertainty picking up further after the forthcoming elections, coupled with prediction markets implying a strong chance of a leadership challenge over the course of the year remains a key risk to watch.”

It added; “A move well above 0.90 in EUR/GBP this year would likely require new leadership to follow through with any fiscally profligate market-unfriendly policies. Nevertheless, we overall see the risks skewed to Sterling under-performance against the Euro.”

According to Bank of America (BoA); “We still think that the May elections have the capacity to unsettle markets and as such think that vol is under-priced particularly as we enter the month of May when seasonals turn less constructive for GBP and risk assets more broadly.”

BoA is still positive on the medium-term outlook, especially given the yield structure.

The Bank of England (BoE) held interest rates at 3.75% at the latest policy meeting. There was an 8-1 vote as Pill backed a rate hike.

According to the bank, the most likely outcome is that the bank will have to increase interest rates only slightly to bring inflation under control. It did, however, note the risk of a much more severe impact on inflation if the Middle East situation deteriorates much further. In this scenario, it warned that rates might have to increase sharply.

Markets are pricing in three rate hikes over the remainder of 2026.

Danske Bank commented; “The meeting today did not convince us, that the BoE is on the brink of hiking rates. We think they are satisfied with the tighter financial conditions and are most likely to keep the Bank Rate at the current level, but we recognise the risk is tilted towards one or two hikes.”

The ECB held the deposit rate at 2.00%, but there were clear hints that rates would be increased at the June meeting.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts