Pound to Euro Week Ahead Forecast: BoE Faces Energy Test

Modified: Monday, 21 September 2026 06:31 BST - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: BoE Faces Energy Test

The Pound to Euro exchange rate (GBP/EUR) recovered towards 1.1650 after falling to two-week lows near 1.1620 following the Bank of England's decision to leave rates unchanged.

Policymakers still appear reluctant to tighten, but persistently high energy prices are rapidly reducing their room to wait, with a growing number of investment banks now forecasting a November rate hike

GBP/EUR Forecasts: Time running out for the BoE

Danske Bank is forecasting Pound to Euro (GBP/EUR) exchange rate losses to 1.1360 on a 12-month view.

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.” (GBP/EUR losses)

GBP/EUR dipped sharply to 2-week lows near 1.1620 after the Bank of England (BoE) interest rate decision before rallying to 1.1650.

Interest rate developments were important with markets also watching energy prices closely with further upward pressure on oil prices while gas prices hit fresh 3-year highs.

Elevated energy prices will represent a threat to the Pound and Euro with geo-political developments also important. Fiscal policy will also be a growing focus ahead of the October 28th budget.

The BoE held interest rates at 3.75%, in line with consensus forecasts. There was a 6-3 vote for the decision as Mann, Greene and Pill again voted for a 25 basis-point hike.

The bank did warn that rates were likely to increase if energy prices remain at elevated levels.

There has been a shift within investment banks. Barclays, for example, is now backing a November rate hike. MUFG is also now backing a hike in November and sees the potential for a further hike early next year.

Danske Bank is still not backing a rate hike at this stage; “Our base case remains for an unchanged Bank Rate until June 2027, when the BoE can resume the cutting cycle and deliver another 25bp rate cut. Bank Rate of 3.75% is already restrictive, and we are more sceptical about the growth outlook for the remainder of 2026.”

It did add; “If energy markets do not improve and the economy continues to look resilient, we would then expect a rate hike, even in the absence of spillovers to broader price-setting.”

According to Rabobank; “Reading between the lines, the message from the MPC is that it would *still* prefer to keep rates on hold for as long as possible. However, unless the situation in Iran de-escalates, which they currently do not expect, they will eventually have to conclude that a rate increase is necessary.”

The bank now expects a 25 basis-point hike to 4.00%.

It did, however, add; “ In our view, Bank Rate at 3.75% is already restrictive. Any further increase is therefore likely to prove temporary, raising the prospect that the MPC will ultimately need to reverse the move. It has an end-2027 forecast of 3.50%.”

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TAGS: Pound Euro Forecasts