British Pound to Euro Forecast: Weak Growth Data Puts GBP/EUR Under Pressure

Modified: Friday, 5 June 2026 16:26 BST - Written by James Fuller

STORY LINK British Pound to Euro Forecast: Weak Growth Data Puts GBP/EUR Under Pressure

The Pound to Euro exchange rate (GBP/EUR) edged lower after failing to sustain a move towards the 1.1600 level, as investors weighed mounting evidence that both the UK and Eurozone economies are struggling under the weight of higher energy costs and weakening demand.

With crucial European Central Bank and Bank of England policy decisions approaching, markets are increasingly focused on which central bank will be willing to tolerate slower growth in order to combat inflation.

GBP/EUR Forecasts: Drift Lower

The Pound to Euro (GBP/EUR) exchange rate was unable to attack the 1.16 level on Wednesday and has drifted lower to just below 1.1570.

There are concerns over the UK and Euro-Zone growth outlook as higher energy prices continue to have an important impact with central bank rate decisions a growing focus.

At this stage, markets are not expecting a June BoE rate hike while the ECB is expected to hike rates this month.

According to SEB; “the Bank of England could sit this out and, from a rate-differential perspective, this should weaken the pound.”

The final reading for the UK PMI services-sector index was revised to 49.3 from the flash reading of 47.9 and the weakest reading since April 2025.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; "UK service sector companies signalled a reversal of fortunes in May as business activity fell into contraction after showing some resilience earlier this spring.”

He added; "Worries about a prolonged spike in inflationary pressures, combined with elevated geopolitical tensions and subdued demand, continued to weigh on business activity expectations in May. The degree of optimism eased for the third time in four months, to its lowest since the US tariffs-related slump in April 2025."

There was further weakness in the UK construction sector with the PMI index weakening further to a 6-year low of 38.2 from 39.7 previously and below consensus forecasts of 40.4.

Input charges, however, increased at the sharpest rate for close to four years, illustrating major challenges for the Bank of England.

S&P Global Market Intelligence’s Moore commented; "UK construction companies reported a steep downturn in business activity during May, with the speed of contraction accelerating to its fastest for six years.”

He added; "Anecdotal evidence suggested that economic uncertainty and rising inflation in the wake of the Middle East conflict had triggered the steepest drop in new work since the beginning of the pandemic.”

There are also important pressures within the Euro area. Danske Bank commented; “Reflecting the weaker economic data, we have revised our euro area GDP forecast and now expect growth to slow to 0.7% y/y in 2026, down from 1.2% in our previous projection.”

Markets still expect that the ECB will hike rates this month. Danske noted; “We expect the ECB to hike the deposit rate by 25bp to 2.25% on Thursday 11 June in line with consensus and markets. We expect Lagarde to keep full optionality on the future policy rate path, including a potential summer hike but not pre-committing.”

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TAGS: Pound Euro Forecasts