Pound to Euro Week-Ahead Forecast: Chancellor Choice Key After GBP Hits 13-Month High

Modified: Monday, 20 July 2026 07:31 BST - Written by James Fuller

STORY LINK Pound to Euro Week-Ahead Forecast: Chancellor Choice Key After GBP Hits 13-Month High

The Pound to Euro exchange rate (GBP/EUR) has eased from 13-month highs near 1.1820 but remains firmly supported as markets continue to assess the implications of Andy Burnham's incoming government.

Expectations that Shabana Mahmood will become Chancellor have reassured investors concerned about fiscal policy, although the final cabinet appointments and Bank of England outlook remain crucial for Sterling's next move.

GBP/EUR Forecasts: Chancellor appointment key

Danske Bank still expects the Pound to Euro (GBP/EUR) exchange rate to weaken over the medium term, but has raised its forecasts and is now projecting a rate of 1.15 on a 12-month view compared with 1.1240 previously.

According to Danske; “We highlight that the UK economy remains fragile and that we see scope for the significant repricing of the BoE to revert to a larger extent than for the ECB, opening for a move higher in EUR/GBP. We continue to forecast EUR/GBP to move higher from current levels but now see the outlook more balanced.”

GBP/EUR surged to 13-month highs around 1.1820 before a retreat to 1.1750.

During the week, there was strong speculation that Andy Burnham would appoint Mahmood as Chancellor. Markets have been fretting over the potential for Milliband to be appointed and the potential change curbed fears over a shift in fiscal policy.

The move also generated momentum. ING commented; “Sterling's gains appear to be driven by a low-volatility environment that favours the UK's relatively high interest rates, plus the unwinding of some short GBP positioning.”

Credit Agricole is cautious over the short-term outlook; “We believe that many positives – both in terms of abating fiscal risks and hawkish BoE rate expectations – are already in the price of the GBP. The currency should struggle to extend its recent gains as a result.”

Political developments will continue to be watched closely as Burnham, following confirmation as Prime Minister on July 20th, appoints his cabinet and fleshes out economic policy.

In this context, the Pound could be vulnerable if Mahmood is not appointed as Chancellor.

Monetary policy and the economy will be key elements. At this stage, markets expect two Bank of England (BoE) rate hikes this year.

According to ING; “We very much doubt the BoE will deliver on any of the BoE tightening priced in by the market.

It added; “And we doubt there will be a bullish re-assessment of UK growth prospects once Andy Burnham takes charge. Here, he will have to raise taxes if he wants to increase social spending.”

Danske commented on the interest rate outlook; “Risks remain skewed towards hikes over the coming six months, given businesses’ intention to increase prices quite steeply according to the PMI survey, and with an uncomfortable period with elevated inflation ahead due to increased energy price caps.

Nevertheless, it added; “The slowing economy, cooling labour market and now also lower oil prices suggest that core price pressures will not increase more than what the BoE will accept, though. We pencil in no rate changes for the coming 12 months.”

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TAGS: Pound Euro Forecasts