Pound-to-Euro Forecast: GBP Recovery Gains Momentum Despite Weak UK Data

Modified: Tuesday, 26 May 2026 08:01 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: GBP Recovery Gains Momentum Despite Weak UK Data

The Pound to Euro exchange rate (GBP/EUR) proved surprisingly resilient during the week, holding above 1.1550 despite a run of softer UK economic data and growing doubts over the scale of future Bank of England interest-rate increases.

Sterling benefited from an easing of immediate political fears after Andy Burnham pledged support for existing fiscal rules, helping reverse some of the sharp losses triggered by concerns over UK political stability earlier this month.

GBP/EUR Forecasts: Pound recovery

On a 6-month view, Rabobank is forecasting that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.1360 on a 6-month view.

ING expects that GBP/EUR will slide to 1.11 on a 12-month view.

UK data overall was weaker than expected during the week, but the Pound was notably resilient as GBP/EUR traded above 1.1550.

The Pound had been sold aggressively on political fears and Greater Manchester Mayor Burnham’s promise not to break existing fiscal rules helped to trigger a recovery on short covering.

Political considerations will still be important in the short term with Burnham standing in the June 18 Makerfield byelection. If he wins, there is a strong probability of a leadership challenge.

CIBC commented; “Should the Labour government embark on a protracted leadership race across the summer, (the upcoming Makerfield by-election will prove instructive) risks amplifying fiscal indiscipline concerns, risking a continued uptrend in long end yield, beyond levels last witnessed in 1997. Such an outcome underlines macro fears and a solid rationale for investors to remain nervous holding GBP in the near term.”

Rabobank also noted the potential for market concerns; "While Burnham has reassured the market that he would stick to the current fiscal rules, both gilts and GBP are likely to be jittery into the summer."

The latest data releases indicated significant weakness in the services sector while there were still very strong cost pressures and upward pressure on prices.

This Bank of England (BoE) has admitted that there will be tough trade-offs for the bank and rate calls will be tough. The official inflation rate, however, dipped to 2.8% for April from 3.3% previously.

MUFG commented on the inflation data; “It provides some reassuring news that underlying inflation was continuing to slow before the energy price shock hits harder heading into the summer. It makes the UK look less of an outlier in terms of higher inflation when compared to other major economies.”

Markets overall were less confident that the BoE would opt for multiple rate hikes.

According to Rabobank "On one hand, the prospect of fewer BoE rate hikes is a GBP negative factor. However, the pound has backtracked from this month’s weakest levels vs. both the EUR and the USD in part due to assurances from potential Labour leadership contender Burnham regarding the current Chancellor’s fiscal rules.”

There is a strong probability that the ECB will hike rates in June.

Danske Bank commented; “We highlight that the UK economy remains fragile and that we see scope for the significant repricing of the BoE to revert to a larger extent than for the ECB, opening for a move higher in EUR/GBP.”

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TAGS: Pound Euro Forecasts