Pound-to-Euro Weekly Forecast: Three-Year High UK Gas Prices Threaten GBP

Modified: Monday, 24 August 2026 07:01 BST - Written by James Fuller

STORY LINK Pound-to-Euro Weekly Forecast: Three-Year High UK Gas Prices Threaten GBP

The Pound to Euro exchange rate (GBP/EUR) recovered modestly after falling to two-week lows below 1.1650, but renewed energy-market pressures are threatening Sterling's resilience.

UK gas prices have climbed to three-year highs, raising concerns that another energy shock could squeeze household demand, intensify business cost pressures and complicate the Bank of England's policy outlook.

GBP/EUR Forecasts: Energy fears in focus

Danske Bank forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken to 1.15 on a 12-month view.

GBP/EUR dipped to 2-week lows just below 1.1650 during the week before settling around 1.1670 with unease over a fresh increase in UK gas prices to 3-year highs.

The PMI business confidence index strengthened to a 4-month high of 52.5 with firmer growth in the services sector.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “The UK economy picked up a bit more pace in August, adding to signs that we should see solid economic growth of around 0.3% in the third quarter.”

He did add; "It’s clear, however, that the Middle East and concerns over domestic government policy continue to have a damaging effect. Most worryingly, cost pressures remain high, largely due to energy prices and supply disruption linked to the Middle East conflict alongside high staffing costs.”

A further increase in energy costs could cause notable pressures on the economy.

Danske notes the recent solid Pound performance; “GBP FX has benefitted from a range of factors. Political instability has once again faded and with a more pragmatic pick for UK chancellor, fiscal sustainability worries have taken a backseat. The UK economy has also performed better than expected although the past weeks data releases have been to the weaker side.”

The bank is still wary over the outlook; “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.”

Traders are still pricing in at least one Bank of England (BoE) rate hike before the end of 2026, although most investment banks are not backing this pricing.

Danske Bank commented; “Our base scenario is an unchanged Bank Rate until the fear of spillover effects on inflation has subsided and the BoE can resume its cutting cycle again by summer 2027.”

Morgan Stanley sees scope for near-term stability before an eventual retreat; “We expect GBP to be a medium-term laggard from a dovish BoE pivot, but that will take time to play out, and its reasonably high carry may help support it versus low-yielding peers in the interim.”

ING noted Euro-Zone resilience which may underpin the Euro, although energy prices will remain a concern; “The turmoil in the Middle East continues, and so do concerns about the eurozone economy. So far, the impact has been far from devastating, with continued modest economic growth in the first half of 2026.”

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TAGS: Pound Euro Forecasts