Pound to Euro Slides as UK Borrowing Hits 1998 Record Highs

Modified: Tuesday, 12 May 2026 19:01 BST - Written by Tim Boyer

STORY LINK Pound to Euro Slides as UK Borrowing Hits 1998 Record Highs

The Pound Euro (GBP/EUR) exchange rate dropped to a three-week low on Tuesday as escalating political uncertainty in the UK weighed heavily on Sterling.

At the time of writing, GBP/EUR was trading at €1.1517, down 0.3% on the day.

The Pound (GBP) came under heavy selling pressure on Tuesday as speculation intensified over Prime Minister Keir Starmer’s political future.

Although Starmer struck a combative tone in a speech on Monday, insisting he would remain in office, pressure on the Prime Minister continued to build. By Tuesday morning, 79 Labour MPs were reportedly calling for him to stand down, while four senior cabinet ministers were said to have privately urged him to resign.

The deepening uncertainty rattled Sterling sentiment. UK government borrowing costs climbed as investors reacted to the instability, with markets also weighing the possibility that a more left-leaning successor could pursue a looser fiscal stance.

Against this backdrop of rising gilt yields and mounting political risk, the Pound weakened sharply on Tuesday morning.

Sterling did manage to recoup some of its losses as Starmer insisted he would not resign, but it remained lower overall.

The Euro (EUR) traded without a clear direction at first, as its strong negative correlation with the strengthening US Dollar (USD) kept a lid on EUR movement.

Even so, the single currency was able to climb to a three-week high against the weakening Pound, although this then prompted some profit-taking in the Euro.

Germany’s ZEW economic sentiment index then failed to meaningfully lift the Euro, despite coming in ahead of expectations, showing an unexpected improvement in morale in May.

Near-Term GBP/EUR Forecast: Could Eurozone Data Drag on the Euro?

Looking ahead, Wednesday begins with Germany’s latest wholesale price figures, which are forecast to show a slowdown in April. Any signs of easing pipeline inflation could put pressure on the Euro.

Attention will then turn to the Eurozone’s newest industrial production data. With output expected to have lost momentum, the figures may leave the single currency vulnerable.

For the Pound, domestic politics is likely to remain the key driver in the absence of major UK economic releases. If uncertainty around Westminster persists, Sterling could struggle to find support.

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TAGS: Pound Euro Forecasts