Pound to Euro: Can Sterling Hold €1.16 after UK Deficit Surge?

Modified: Tuesday, 22 September 2026 20:31 BST - Written by Frank Davies

STORY LINK Pound to Euro: Can Sterling Hold €1.16 after UK Deficit Surge?

The Pound Euro (GBP/EUR) exchange rate edged lower on Tuesday as markets assessed the latest UK government borrowing figures alongside fresh data from the Confederation of British Industry (CBI).

At the time of writing, GBP/EUR was trading at around €1.1652, having drifted modestly lower over the course of the session.

The Pound (GBP) struggled for momentum on Tuesday as fresh UK government borrowing figures highlighted renewed pressure on the public finances.

Government borrowing climbed to £18.3bn in August, the second-highest total recorded for the month.

The figure significantly exceeded both the £15.7bn forecast from markets and the Office for Budget Responsibility’s (OBR) £14.8bn projection.

The larger-than-expected deficit prompted fresh questions over the health of the UK’s finances ahead of the Autumn Budget, leaving Chancellor John Healey with a difficult fiscal task.

Sterling was nevertheless able to limit its losses following stronger-than-anticipated manufacturing data from the CBI.

Falling oil prices also provided some support for GBP.

The sharp decline in crude prices contributed to lower UK gilt yields, reducing government borrowing costs.

This helped ease some of the pressure created by the weaker borrowing figures, as lower yields mean less expensive debt servicing for the government.

The Euro (EUR) traded unevenly on Tuesday, with the absence of fresh economic data leaving the single currency exposed to shifting external influences.

Political and geopolitical developments created some headwinds for the Euro.

Uncertainty surrounding Germany’s political outlook, alongside ongoing tensions between the EU and Russia, weighed on the currency.

At the same time, the recent fall in oil prices offered the Euro some support by easing concerns over energy security across the bloc.

Near-Term GBP/EUR Forecast: PMIs Take Centre Stage

Looking ahead, preliminary PMI figures from the UK and Eurozone will be closely watched by investors on Wednesday.

Eurozone manufacturing activity is expected to have remained unchanged in September, while growth in the services sector is forecast to have slowed.

In the UK, both manufacturing and services activity are also predicted to have eased.

Should the data broadly match expectations, Sterling could struggle to gain ground against the Euro.

However, any significant surprises in either set of figures could trigger a sharper move in the Pound Euro exchange rate.

The single currency will also be sensitive to comments from two European Central Bank (ECB) policymakers.

ECB Vice-President Boris Vujčić is scheduled to speak in the morning, followed by Chief Economist Philip Lane in the evening.

Vujčić is viewed as relatively hawkish, while Lane is regarded as more dovish. Differing messages from the two policymakers could therefore leave the Euro without a clear directional bias.

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TAGS: Pound Euro Forecasts