Pound-to-Euro Forecast: UK Economy Beats Expectations, GBP Rebounds

Modified: Friday, 11 September 2026 17:31 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Forecast: UK Economy Beats Expectations, GBP Rebounds

The Pound to Euro exchange rate (GBP/EUR) rebounded towards 1.1655 after unexpectedly strong UK growth data provided Sterling with some relief following a difficult week.

July GDP expanded by 0.4%, comfortably beating expectations, but the Pound remains caught between evidence of a resilient domestic economy and persistent concerns over elevated gilt yields, fiscal policy and energy prices.

GBP/EUR Forecasts: Rebound from Recent Lows

The Pound to Euro (GBP/EUR) exchange rate recovered some ground on Friday after stronger-than-expected UK GDP data provided Sterling with fresh support.

GBP/EUR traded around 1.1653 during the afternoon session, up around 0.15% on the day after closing Thursday near 1.1635.

The rebound followed a difficult week for Sterling, with bond-market stress, rising energy prices and fiscal concerns all weighing on sentiment.

The UK 10-year gilt yield remains close to multi-decade highs, while Brent crude has pushed above $100 per barrel and natural gas prices remain elevated.

High yields can provide some support for the Pound through attractive carry, but they also increase government debt-servicing costs and intensify pressure on the fiscal outlook ahead of the October Budget.

Rabobank commented; “UK Prime Minister Burnham said that national security cannot come at the expense of social security.” Yet, it must be paid for somehow.”

It added; “Burnham promised to present a sound plan, but the added fiscal uncertainty weighed on Gilt yields, at a time when global yields are already rising. This is not quite a Liz Truss moment, but the 30-year yield rose 7 basis points on the day.”

Friday's UK growth data provided a more encouraging signal.

The economy expanded by 0.4% in July, compared with consensus forecasts for no growth.

Annual GDP growth accelerated to 1.6%, comfortably above expectations for 1.2% and the strongest annual pace since early 2025.

Services output increased by 0.4% on the month and provided the main contribution to growth.

The stronger figures suggest the UK economy entered the third quarter with more momentum than expected and could increase confidence that growth will exceed the Bank of England's current full-year forecast.

George Vessey, lead FX and macro strategist at Convera, had commented ahead of the release; “For [Pound] sterling, that creates an important test.”

He added that stronger growth would help justify the amount of Bank of England tightening currently priced into markets.

The upside GDP surprise therefore provides some support for Sterling, although investors remain cautious because of the broader bond and energy backdrop.

ECB Tightening Keeps Euro Supported

The European Central Bank raised interest rates by 25 basis points on Thursday, taking the deposit rate to 2.50%.

The ECB also increased its inflation forecasts and signalled that price growth is likely to remain above target for an extended period.

Growth forecasts were revised slightly higher, reinforcing the view that the Eurozone economy has so far remained resilient despite elevated energy costs.

Deutsche Bank chief European economist Mark Wall noted the difficult balance;

“The inflation risks may be rising, but the ECB still needs to tread carefully. The economy has been resilient over the last six months, but rapidly rising gas prices mean the negative supply shock is building.”

Further ECB tightening is now increasingly being discussed, with policymakers on Friday leaving the door open to additional rate increases if energy prices remain elevated.

For the GBP/EUR exchange rate, the 1.1620-1.1650 area remains an important support zone.

A sustained recovery above 1.1700 could improve the immediate Sterling outlook.

Renewed gilt-market stress or another sharp rise in energy prices could put the Pound Sterling back under pressure and expose the 1.1600 area again.

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TAGS: Pound Euro Forecasts