Pound to Euro Week Ahead Forecast: GBP Rally Faces BoE Reality Check

Modified: Monday, 6 July 2026 07:01 BST - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: GBP Rally Faces BoE Reality Check

The Pound to Euro exchange rate (GBP/EUR) has retreated modestly after climbing to a 12-month high near 1.1700, with investors taking profits following an extended Sterling rally.

While optimism surrounding the UK's political transition has continued to support the Pound, attention is increasingly shifting towards the economic priorities of an expected Andy Burnham government and the implications of a more cautious Bank of England.

GBP/EUR Forecasts: Burnham countdown

MUFG forecasts a decline in the Pound to Euro (GBP/EUR) exchange rate to 1.1360 by the end of 2026.

Nomura sees GBP/EUR at 1.15 by the end of this year before a slide to at least 1.11 by the end of next year.

GBP/EUR posted strong gains during the week with a peak at 12-month highs at 1.17 before a retreat to 1.16670 amid evidence that short positions were being closed. There were no major data releases while the bond market was calm.

Domestically, there continue to be very strong expectations that Andy Burnham will be installed as the next Labour leader and Prime Minister later in July.

There is still a high degree of uncertainty over cabinet appointments with a particular focus on the post of Chancellor given that fiscal policy will be a key element for the economy and Pound.

ING commented; “As Keir Starmer found, the UK fiscal straitjacket very much limits room for manoeuvre, and it is hard to see any major spending plans coming through without tax rises.”

According to Rabobank; "Political uncertainty can have a depressive impact on business confidence, investment and growth meaning that another change in PM just two years after a general election in the UK is not an optimal scenario for GBP markets.”

It did add; “That said, the fact that PM Starmer has stepped down and that Burnham may be able to take the reins without a messy leadership election has removed some of the uncertainty that had been feared.”

Nomura still noted important risks; “Fiscal concerns may also continue to linger and cause a risk of acute GBP weakness.”

Monetary policy will also be an important factor for the Pound.

MUFG commented; “We have changed our call on BoE rate hikes from expecting two hikes to remaining on hold following the last two CPI data releases that were weaker than expected.”

Nomura added; “Our economists recently removed their forecast for a July BoE rate hike and see two cuts next year. This is the most dovish central bank outlook among our G10 forecasts.”

It expects lower yield will undermine the Pound.

MUFG did note the potential for structural fundamental improvement; “While lower yields are generally FX negative, in the case of the UK with policy already mildly restrictive, the reduced need to monetary tightening reduces downside growth risks and is providing support for the pound.”

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TAGS: Pound Euro Forecasts