Pound to Euro Week Ahead Forecast: Burnham Speculation Sparks New GBP Weakness

Modified: Monday, 18 May 2026 07:01 BST - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: Burnham Speculation Sparks New GBP Weakness

The Pound to Euro exchange rate (GBP/EUR) came under sustained pressure as intensifying UK political turmoil and another sharp sell-off in government bonds fuelled fears of a deeper Sterling downturn.

Investors remain increasingly concerned about the future of Prime Minister Keir Starmer and the potential economic implications of a prolonged Labour leadership battle, with rising gilt yields and fiscal concerns weighing heavily on the Pound outlook.

GBP/EUR Forecasts: Political Fears Erupt

Nomura is more confident that the Pound to Euro (GBP/EUR) exchange rate will slide to 1.1170 by the end of June as the Pound and bonds slide in tandem.

Nomura commented; “Notably, the longer end of the curve continues to climb, with 30-year yields heading towards 6% – well above the September 2022 Truss-spike. Alongside falling bond prices, sterling weakness persists. This combination reflects ongoing concerns about political stability and its potential economic consequences.”

ING expects losses to 1.1240-1.1360 during the summer, but warns over the risk of a slide to 1.11 on political fears.

Domestic politics tended to dominate during the week with Prime Minister Starmer under intense pressure after dismal local election results.

According to ING; “What has been noticeable over the last week is that sterling has finally been dragged into this political crisis.”

There was no formal challenge to Starmer, but Health Secretary Streeting resigned and Greater Manchester Mayor Burnham announced that he would look to stand in the Makersfield by-election after the current MP announced he would make way.

If Burnham can become an MP, he will inevitably be a leadership contender.

After the Burnham news, there was renewed selling in UK bonds with the 10-year yield above 5.10% and GBP/EUR slumped to 5-week lows near 1.1450.

Neil Wilson, Saxo's UK investor strategist commented; "I think the bigger worry is that, not only are we seeing near-term volatility in gilt markets and in sterling, but also that this episode is another nail in the coffin for deep structural concerns about the UK's ability to find leaders who can come up with a credible plan to fix the country's finances and deliver growth."

BNY noted concerns over the UK balance of payments; "The data show that such strong inflows have historically benefited the currency, but toward Q4 last year, some of the support was already starting to wear off. Consequently, GBP now faces flow asymmetry: yield-driven inflows merely support valuations, while fiscal premium-driven outflows could trigger a sharper downside."

It added; "GBP’s NEER remains above long-term averages, and fiscal authorities – current and future – will need to watch currency reactions as closely as gilts through the next parliament."

Bank of England (BoE) chief economist Pill backed a near-term increase in interest rates, but there were doubts whether there would be majority support for any hikes.

Morgan Stanley commented on the outlook; “As long as there are some signs of the Strait of Hormuz reopening by the time of the June meeting, we think the BoE would remain on hold then.”

Its baseline case is no rate hike by the BoE.

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TAGS: Pound Euro Forecasts