British Pound to Euro Forecast: GBP Recovers as UK Bond Market Stabilises

Modified: Thursday, 14 May 2026 11:31 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: GBP Recovers as UK Bond Market Stabilises

The Pound to Euro exchange rate (GBP/EUR) recovered back above 1.1550 after heavy selling earlier in the week, although Sterling sentiment remains fragile amid ongoing political turmoil and elevated UK bond yields.

Investors are continuing to monitor the future of Prime Minister Keir Starmer alongside renewed volatility in the gilt market, with fears that prolonged political uncertainty could trigger another bout of Sterling weakness.

GBP/EUR Forecast: Edges Higher

After significant selling early on Tuesday, the Pound continued a gradual recovery to trade just above 1.1550.

According to ING; “High yields are probably providing sterling with a little insulation at the moment, but we would expect good demand in EUR/GBP under 0.8650. (GBP/EUR selling above 1.1560)

MUFG commented on the medium-term outlook; “This political turmoil is happening at the worst time given the upturn in global inflation risks due to the conflict in the Middle East and with this uncertainty set to persist and potentially get worse, a period of renewed pound underperformance is the obvious conclusion.

It added; “We were already assuming EUR/GBP would drift higher to 0.8850 by year-end (1.13 for GBP/EUR) but if this uncertainty persists and we do see new leadership and a shift left in policy, higher levels through 0.9000 is possible. (1.11 for GBP/EUR)

Prime Minister Starmer has not resigned and there has been no formal challenge to his position.

MUFG noted; “Starmer’s confirmation that he was not resigning did mark the time of the peak in Gilt yields so the decision does look to have helped contain the risk of a nastier rise in yields that could destabilise broader UK markets.”

There are still very important tensions with markets also monitoring economic developments. The latest GDP data is due on Thursday.

After an initial bounce on Wednesday, there was also renewed selling of UK bonds with the 10-year yield near 5.10% and not far below Tuesday’s peak.

ING commented; “Today could prove a day of rest in political manoeuvring, given the state opening of parliament and King Charles delivering Labour's planned legislation over the next term. However, any of those candidates formally launching a leadership bid would probably result in fresh sterling losses – especially any news on Andy Burnham, whose policies are seen threatening the gilt market.”

XTB research director Kathleen Brooks took a similar view; “So close to the opening of parliament was always going to be a tough time for a coup, and at least for now, Starmer’s position looks safe, albeit highly uncomfortable. UK bonds are staging a tentative recovery on the back of this, and yields are falling, other UK asset classes like the pound and UK stocks are stabilizing.”

She added; “BUT…. 10-year yields are still over 5% which means the UK government’s borrowing costs are rising sharply, eroding the fiscal headroom built up by Rachel Reeves in last year’s budget.”

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TAGS: Pound Euro Forecasts