Pound-to-Euro Forecast: Energy Price Fears Push GBP Back Towards 1.1550 EUR

Modified: Thursday, 28 May 2026 16:41 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: Energy Price Fears Push GBP Back Towards 1.1550 EUR

The Pound to Euro exchange rate (GBP/EUR) edged lower after failing to sustain gains above the 1.1600 level, with investors increasingly concerned that rising energy costs will weigh on UK growth and consumer spending in the months ahead. Markets are also reassessing how aggressively the Bank of England and European Central Bank can tighten monetary policy as inflation risks clash with slowing economic momentum.

GBP/EUR Forecasts: Drifts Towards 1.1550

After failing to sustain a brief move above the 1.16 level earlier in the week, the Pound to Euro (GBP/EUR) exchange rate has drifted lower to just below 1.1550 amid concerns that higher energy prices will undermine the economy.

Market conditions were relatively quiet with small losses for the FTSE 100 index while the 10-year bond yield held below the 4.90% level.

Central bank policies will remain key with markets watching evidence on June policy decisions by the Bank of England and ECB.

Any move below 1.1520 would invite further selling pressure on the pair

Ofgem confirmed that the price cap for household energy bills will increase 13% from July. Although this was in line with expectations, there are increased concerns that bills will increase slightly further in October when energy demand increases sharply on seasonal factors.

The Bank of England (BoE) will have to judge the extent to which the spike in inflation due to energy prices will lead to second-round effects and whether there will be a big hit to demand.

This calculation will drive interest rate decisions over the next few months with the Pound at risk if the bank decides against any rate hikes.

The British Retail Consortium (BRC) reported that shop prices increased 1.2% in the year to May from 1.0% previously.

BRC chief executive Helen Dickinson commented; “While retailers work hard to keep prices down for customers, they continue to face significant cost pressures, including higher energy bills and disruption linked to the conflict in Iran. Businesses cannot absorb these costs indefinitely, which risks pushing prices higher in the months ahead.”

ECB policy will also be a key element for GBP/EUR. In comments on Tuesday, ECB chief economist Lane stated that it would be a major issue for the central bank if the energy shock shifted to a broad inflation problem.

Executive Board member Schnabel stated that “looking through is no longer an option given her view of the size and persistence of the current shock.”

A hike is fully priced in for June with a second hike nearly fully priced by September.

The Euro will be notably vulnerable if the ECB decides against a June rate increase.

According to MUFG; “The prospect of the shock becoming broad-based and therefore a “major issue” still looks remote in our view. So that likely means limited action will be required from the ECB but with the baseline inflation projection set to rise, not hiking rates would certainly be questioned and difficult to explain.”

Danske Bank added; “We still expect the ECB to hike rates in June to curb inflation expectations and as that has clearly been signalled by GC members.”

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TAGS: Pound Euro Forecasts