GBP/EUR Outlook: Euro Weakness Offsets UK Economic Concerns

Modified: Monday, 25 May 2026 07:41 BST - Written by Frank Davies

STORY LINK GBP/EUR Outlook: Euro Weakness Offsets UK Economic Concerns

The Pound to Euro exchange rate (GBP/EUR) remained close to 10-day highs near 1.1565 despite another run of disappointing UK economic releases, as weakness in the Euro helped offset concerns over the domestic outlook.

Sterling shrugged off weaker retail sales and a larger-than-expected borrowing requirement, with investors instead focusing on growing doubts over Eurozone growth and whether the European Central Bank can deliver the pace of interest-rate increases currently priced into markets.

GBP/EUR Forecasts: Trading above 1.1550

The Pound to Euro (GBP/EUR) exchange rate has held firm despite weaker than expected data releases on Friday and is trading around 1.1565, close to 10-day highs. The Pound was underpinned by a weaker Euro with markets fretting over the Euro-Zone outlook.

MUFG commented; “The flow of UK data has certainly been more consistently weaker this week although the weaker inflation that sparked a big Gilt market rally prompted pound strength.”

The UK public sector borrowing requirement increased to £24.3bn in April, the first month of fiscal 2026/2027 compared with £20.9bn the previous year and above the OBR estimate of £20.9bn.

RSM chief economist Thomas Pugh expressed concerns over the trends; “It now looks inevitable that government borrowing will soar past the £115.5bn that the OBR expected for this financial year back in March.”

He added; “Indeed, a weaker economy, rising unemployment rate, soaring gilt yields and some additional fiscal support for households and businesses will combine to push borrowing significantly higher this year. We have pencilled in an additional £20bn to £30bn of borrowing this year.”

Elsewhere, UK retail sales volumes declined 1.3% for April compared with consensus forecasts of a 0.6% decline. Fuel sales declined over 10%, the sharpest decline for over five years, as prices increased sharply.

There was, however, an improvement in the GfK consumer confidence index to -23 for May from -25 previously and compared with consensus forecasts of -28.

Neil Bellamy, Consumer Insights Director at GfK, an NIQ Company, says: “Consumers appear to be in a more generous mood in May, with a two-point increase in the headline score and improving perceptions of both personal finances and the wider economy.

He did, however, point to a sharp dip in savings and notable weakness among lower earners.

According to Bellamy; “Inflation may have fallen in April, but with price pressures expected to rise again and continued uncertainty around interest rates, it’s unlikely May marks the beginning of a sustained improvement.”

The German IFO business confidence index improved to 84.9 for May from 84.5 the previous month and above consensus forecasts of 84.2 with the current assessment and expectations components both edging higher.

ING is still concerned over the outlook; “This week's European PMIs have been poor and warn of weaker activity through the second quarter. Softer activity also brings into question how hawkish the ECB can be.”

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TAGS: Pound Euro Forecasts