British Pound to Euro Forecast: Bond Market Fears Add to GBP Pressure

Modified: Wednesday, 13 May 2026 12:01 BST - Written by Tim Boyer

STORY LINK British Pound to Euro Forecast: Bond Market Fears Add to GBP Pressure

The Pound to Euro exchange rate (GBP/EUR) slumped to fresh 3-week lows below 1.1500 before recovering modestly, as intensifying political turmoil surrounding Prime Minister Keir Starmer rattled UK markets.

Sterling came under renewed pressure as UK bond yields surged to multi-decade highs and investors grew increasingly concerned over the prospect of a prolonged Labour leadership battle, with markets also reacting nervously to higher oil prices and worsening fiscal fears.

GBP/EUR Forecasts: Hit 3-Week Lows

The Pound to Euro rate dipped sharply to 3-week lows just below 1.500 in early Europe on Tuesday before rallying to 1.1530.

Markets are continuing to watch Prime Minister Starmer’s battle for survival with traders also watching the bond market closely amid renewed selling. UK equities also lost ground with significant selling in the UK banking sector.

A further increase in yields would increase fears over the Pound. Immediate GBP/EUR remains in the 1.1500 area.

There were expressions of support for Starmer after Tuesday’s Cabinet meeting, although the key potential players in any succession battle were silent and there were further calls for Starmer to quit within the Labour Party and his position remains perilous.

Rabobank commented; “Clearly, the centre cannot hold and we should expect even more intense polarisation ahead, and probably more damage to the budget. Whither the Gilt market?”

Oil prices posted significant gains on Tuesday, reinforcing inflation concerns and contributing to upward pressure on bond yields.

The UK 10-year yield increased to just above 5.10% before stabilising. The 20-year and 30-year yields increased to 28-year highs, increasing the mood of unease surrounding the Pound outlook.

Killik & Co senior investment manager Lucy Smith commented; “Gilt yields continue to creep up as Starmer’s premiership appears to weaken. Right now, it is hard to say whether a swift and decisive swap to a new leader or a longer-term contest will generate more uncertainty, and by extension, higher borrowing costs. Either way, the mere prospect of change, in part driven by an underlying fear that we could return to an era of successive leadership changes, is enough for investors to lose confidence.

According to MUFG; “The latest developments increasingly look like the end of the road for Keir Starmer as prime minister. A leadership contest whether immediate or more drawn out will add to political uncertainty in the near-term which is negative for the pound and gilts. The risk of a bigger sell-off will increase if Labour shift towards the left.”

ING also discussed the political outlook; “The pound has plenty of additional room to build a negative premium, with markets likely to shift their focus to which candidate holds the best chance of replacing Starmer. Andy Burnham, Wes Streeting and Angela Rayner are considered the frontrunners.

It added; “Notably, sterling came under pressure recently following reports that Burnham could seek a parliamentary seat to advance a leadership bid, reflecting concerns that his views on abandoning the fiscal rule could undermine a key anchor of market confidence in UK public finances.”

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TAGS: Pound Euro Forecasts