British Pound to Euro Forecast: GBP Battles Back as Bond Market Fears Persist

Modified: Tuesday, 19 May 2026 15:11 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: GBP Battles Back as Bond Market Fears Persist

The Pound to Euro exchange rate (GBP/EUR) rebounded from fresh 6-week lows near 1.1450 after markets reacted positively to comments from Andy Burnham backing the UK’s fiscal rules and renewed hawkish rhetoric from the Bank of England.

Despite the recovery, Sterling sentiment remains fragile as investors continue to grapple with mounting political uncertainty, surging bond yields and fears over the wider economic impact of higher energy prices.

GBP/EUR Forecasts: Bounces from 6-Week Lows

The Pound to Euro (GBP/EUR) exchange rate briefly touched 6-week lows close to 1.1450 in Asia on Monday before a rally to near 1.1480. There was a tentative recovery after Greater Manchester Mayor Burnham stated that he supports the fiscal rules.

Bank of England MPC member Greene also issued relatively hawkish rhetoric and suggested that interest rates would probably have to increase as it was not appropriate to look through the short-term jump in energy prices.

After sharp selling last week, there was an element of short covering. Markets, however, were still monitoring UK political developments, Bond markets and risk appetite very closely.

These are all inter-linked and pose important potential Sterling risks. ING expects a GBP/EUR retreat to 1.1440.

The 10-year bond yield hit a fresh 18-year high near 5.20% before settling around 5.16% with global fears and domestic concerns triggering renewed selling while the FTSE 100 index also hit 6-week lows before attempting a recovery.

According to Jefferies economist Mohit Kumar; “Inflation and deficit concerns have been in the background for a while. UK was probably the catalyst for bringing these concerns to the fore.”
He added; “Political uncertainty and the challenge to PM Starmer has raised concerns of a policy shift towards the left. UK fiscal picture has already been in a poor shape as the Government was unable to delivery on spending cuts.”
ING commented; “it is hard to see any early resolution to the UK political drama. A by-election will take place in June, where Labour leadership challenger Andy Burnham is far from guaranteed a win. Depending on the outcome of that by-election, we could then see a full leadership election taking place through July and potentially into August.”

It added; “During this period, international investors may want to avoid UK exposure, and at its extreme, another 3-4% in risk premium could be priced into sterling.”

MUFG focussed on any policy options if Burnham can become Prime Minister; “He favours re-industrialisation, mass council house building, more public control of essential services, and steps to lower the cost of living. It has been reported that he has called for GBP40 billion of additional government borrowing to fund long-term capital spending. He has also floated the idea of taking defence spending out of the fiscal rules.”

According to MUFG; “The unfavourable domestic political developments come at a challenging time for the gilt market which is also facing the risk of much higher inflation from the energy price shock.”

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TAGS: Pound Euro Forecasts