Pound-to-Euro Outlook: BoE 6-3 Hold Leaves GBP/EUR Under Pressure

Modified: Sunday, 20 September 2026 08:16 BST - Written by David Woodsmith

STORY LINK Pound-to-Euro Outlook: BoE 6-3 Hold Leaves GBP/EUR Under Pressure

The Pound to Euro exchange rate (GBP/EUR) remained under pressure after the Bank of England held interest rates at 3.75%, reinforcing expectations that UK policymakers will remain more cautious than the ECB and Federal Reserve.

Pound Sterling slipped below 1.1650 following the decision, although stronger-than-expected retail sales and a sharp post-BoE rally in gilts provided some support heading into the weekend.

GBP/EUR Forecasts: Remaining under Pressure

The Pound remained under pressure after the Bank of England held interest rates at 3.75%, with markets concluding that policymakers were still reluctant to follow the Federal Reserve and European Central Bank into a more aggressive tightening cycle.

The Pound to Euro (GBP/EUR) exchange rate slipped below 1.1650 following Thursday's announcement before stabilising as stronger UK retail sales provided Sterling with some support on Friday.

ING remains cautious on the Pound; “EUR/GBP remains our preferred way to play that GBP weakness beyond the near term, and we target 0.87 by year-end.”

This would equate to GBP/EUR around 1.15.

The Monetary Policy Committee voted 6-3 to hold Bank Rate at 3.75%, unchanged from the previous meeting.

Megan Greene, Catherine Mann and chief economist Huw Pill again voted for an immediate increase to 4.0%.

According to the statement; “Overall, the Committee judges that the risks to the inflation outlook are tilted to the upside, and more so than at the time of the July Monetary Policy Report, although there remains scope for the outlook to change materially as events in the Middle East unfold.”

The Bank warned that inflation is likely to rise further over coming quarters as higher energy prices work through the economy.

Governor Andrew Bailey noted; “Financial conditions will continue to work to push down on inflation, and holding Bank Rate is appropriate at this meeting. But if the conflict in the Middle East persists for an extended period, as appears to be the case, and the risk of second-round effects emerging increases, it is likely that policy may have to tighten.”

BoE Calms Gilt Market but Questions Remain over Rate Path

The Bank also unveiled a major change to its quantitative-tightening programme.

Active gilt sales will pause until April while the Bank moves towards a longer-term programme that will reduce its remaining bond holdings at an average pace of £46bn per year through to 2034.

The Bank will sell £20bn of gilts annually alongside maturing bonds and will retain £120bn of the longest-dated securities to back banknote issuance.

The announcement triggered a significant rally in gilts, with the 30-year yield falling around 12 basis points following the decision.

This offered some relief after the recent surge in government borrowing costs, although the wider fiscal outlook remains a concern ahead of the October Budget.

Markets still see a meaningful possibility that the Bank will tighten in November, although expectations moderated following the meeting.

ING commented; “Thursday's Bank of England decision makes clear what we already knew: that the prospect of a November rate hike will depend entirely on energy prices. A hold is still our base case, assuming energy prices cool over the next six weeks. If they don't, then we'd expect the Bank to reluctantly hike rates in November and probably in February too.”

Bailey also pushed back against the assumption that the Bank was committed to delivering the series of rate increases currently priced by markets, stressing that the outlook remains highly uncertain.

Strong Retail Sales Offer Sterling Some Relief

Friday's UK retail sales figures provided a more encouraging domestic signal.

Sales volumes increased by 0.5% in August compared with forecasts for a 0.2% decline, while annual growth reached 2.4%.

The figures added to recent evidence that the UK economy has remained relatively resilient despite high borrowing costs and the renewed energy shock.

The stronger data increased pressure on the Bank to keep a tightening bias, although policymakers remain focused on whether higher energy prices generate broader second-round inflation effects.

David Rees, Head Of Global Economics at Schroders commented; "Domestically generated inflation is contained, wage growth is decelerating and unemployment near 5% points to meaningful slack in the labour market. This is not an economy crying out for higher rates.”

He added; "The bigger risk lies with fiscal policy. October’s Budget will be crucial.”

For GBP/EUR, the 1.1620-1.1650 area remains the immediate downside support zone.

A sustained break below this region would increase the risk of a move towards 1.1600 and eventually ING's 1.15 year-end target.

A recovery above 1.1700 would ease the immediate pressure, but Sterling is likely to remain sensitive to energy prices, gilt yields and expectations surrounding the November Bank of England meeting.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts