British Pound-to-Euro Forecast: Fading Rate Hike Expectations Weigh on GBP

Modified: Friday, 19 June 2026 12:01 BST - Written by David Woodsmith

STORY LINK British Pound-to-Euro Forecast: Fading Rate Hike Expectations Weigh on GBP

The Pound to Euro exchange rate (GBP/EUR) has recovered modestly to around 1.1540 after initially falling to 20-day lows following the Bank of England's decision to leave interest rates unchanged.

Pound Sterling remains vulnerable to political uncertainty following Andy Burnham's victory in the Makerfield by-election, although the absence of any immediate leadership challenge has helped limit further losses.

GBP/EUR Forecasts: Retreats to 20-Day Lows

The Pound to Euro (GBP/EUR) exchange rate lost ground late on Wednesday and retreated further to 20-day lows near 1.1530 on Thursday.

The latest labour-market data was again relatively soft and the Bank of England (BoE) decision to hold rates failed to lift the Pound while there was significant caution ahead of the Makerfield by-election result due early Friday.

ING still expects that GBP/EUR will retreat to at least 1.15 on a short-term view.

MUFG expects a limited Pound retreat in the short term while Rabobank also expects a retreat to 1.15 on a 3-month view..

The Monetary Policy Committee (MPC) held interest rates at 3.75%, in line with consensus forecasts. There was a 7-2 vote for the decision, also meeting expectations as chief economist Pill and external member Greene voted for a 25 basis-point hike to 4.00%

The majority considered that underlying disinflation was on track ahead of the Iran conflict and that the bank could hold rates at this stage, especially as the labour market is weaker.

The dissenters preferred to raise rates as part of a risk management strategy.

Traders are still pricing in one rate hike this year, but many investment banks are unconvinced.

ING noted that private-sector wages growth slowed to 2.9% in the three months to April, the first reading below 3.0% for 6 years.

According to the bank; “Combined with generally soft employment figures, today's data provides fuel to the views from the BoE doves that the risks of second-round inflation effects are low.”

In this context, ING is doubtful that the BoE will hike rates.

MUFG also expressed reservations; “The soft labour market should continue to dampen concerns over second round inflation effects from the energy price shock. In light of recent developments, we are less convinced that the BoE will raise rates this year.”

Rabobank sees a limit to dovish rhetoric; “even policy doves may conclude that in order to avoid an official rate hike, market rates may need to stay elevated for now. This raises the risk that the Bank continues to talk tough over the summer."

Political developments will be watched very closely after the Makerfield result.

ING commented; “Assuming Andy Burnham wins, the focus will quickly switch to whether PM Starmer quietly plans his succession or fights on. Neither of which looks good for sterling.

MUFG added; “The gilt market is more comfortable with the idea of Burnham becoming leader after he indicated he would stick to the government's fiscal rules limiting ability to loosen fiscal policy. Nevertheless, political uncertainty could act as a headwind for gilts and the pound.”

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TAGS: Pound Euro Forecasts