British Pound to Euro Forecast: Markets Scale Back Rate Hike Expectations After BoE Hold

Modified: Thursday, 18 June 2026 13:11 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: Markets Scale Back Rate Hike Expectations After BoE Hold

The Pound to Euro exchange rate (GBP/EUR) held above 1.1550 after the Bank of England left interest rates unchanged at 3.75%, as widely expected.

While the decision itself caused little surprise, the Bank's cautious tone and softer inflation backdrop reinforced expectations that policymakers are in no rush to tighten policy, leaving Sterling vulnerable ahead of the Makerfield by-election and next week's labour market data.

GBP/EUR Forecasts: Close to 1.1550

The Pound to Euro (GBP/EUR) exchange rate edged lower after the latest UK inflation data, but held above 1.1550. The Euro struggled to make headway despite lower energy prices.

The Bank of England left interest rates unchanged at 3.75%, as widely expected. Policymakers acknowledged easing inflation pressures but continued to stress uncertainty surrounding energy prices, growth and potential second-round inflation effects. Political concerns also contributed to the nervous tone ahead of the Makerfield by-election with expectations of a challenge to Prime MInister Starmer next week.

As well as the Makerfield election, the latest UK labour-market data will be released on Thursday.

ING still expects GBP/EUR will retreat towards 1.15 on political and economic concerns.

The headline UK inflation rate held at 2.8% for May compared with consensus forecasts of an increase to 3.0% while the core rate edged higher to 2.6% from 2.5% and slightly below expectations of 2.7%.

The goods inflation rate slowed to 2.0% from 2.4% while the services-sector rate increased to 3.7% from 3.2%.

The rate of food inflation slowed to 2.2% from 3.0% which helped offset inflation pressures in the transport sector where prices increased 6.8% on the year, the highest rate since late 2022.

ING commented; “The UK is the latest country to experience remarkably benign food inflation in May, despite the Middle East crisis which threatens to push up costs later this year. If energy prices stay where they are, we're likely to see inflation peak around 3.5% in September. We don't think that meets the bar for rate hikes.”

It added; “Barring the Iran deal falling apart and oil prices spiking back above $100 a barrel – and natural gas costs soaring too – we think the Bank of England is set for a prolonged pause. We expect a 7-2 vote in favour of ‘no change’ tomorrow.”

MUFG noted; “We had assumed the BoE would hike but these consecutive weaker CPI prints point to a greater chance now that the BoE will be able to hold off and keep the policy rate stable.”

There was still upward pressure on prices at the wholesale level with input prices increasing 8.7% over the year from 7.9% previously.

Pantheon Macroeconomics chief economist Rob Wood expressed some wider caution; “Underlying services inflation—stripping out volatile and government-set prices— was still above inflation target consistent rates in May and slowing only very gradually.”

He added; “We now expect Bank Rate on hold through end-2027.”

While the Bank of England decision delivered few surprises, markets are likely to focus increasingly on political developments ahead of the Makerfield by-election. With inflation easing and rate expectations fading, the Pound may become more sensitive to UK political headlines over the coming weeks.

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TAGS: Pound Euro Forecasts