British Pound to Euro Forecast: Bank of England Running Out of Time

Modified: Tuesday, 22 September 2026 14:16 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: Bank of England Running Out of Time

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: Edging Lower

The Pound was unable to make headway on Monday and drifted lower to near 1.1650, although ranges were narrow..

Energy prices and monetary policy expectations for the UK and Euro-zone will remain key elements for markets and the Pound. Danske Bank is forecasting a decline to 1.1360 on a 6-month view.

According to Danske; “Near-term risks are inherently connected to global energy prices and the developments in Iran as well as the global investment environment. The key risk to EUR/GBP trading substantially higher than our forecast is a sharp sell-off in global risk, which could be triggered by further escalation in the Middle East.”

Markets are also continuing to monitor German political developments with Chancellor Merz suffering two further defeats in the latest round of local elections. Notably, the party secured less than 5% in the north-eastern state of Mecklenburg-Vorpommern.

ING considers that the results are primarily a reflection of local dynamics rather than the fiscal expansion plans, but added; “with CDU support falling and the political landscape becoming increasingly fragmented, delivering that agenda may become more challenging.”

At this stage it added; “These developments add some clouds to the euro, but are not enough to displace rate differentials and oil as its primary drivers.”

As far as monetary policy is concerned, it now expects that the ECB will increase interest rates at the December policy meeting.

Rabobank added; “We now expect the ECB to raise the deposit facility rate by 25bp in December, to 2.75%.”

The outlook for Bank of England (BoE) policies will also be a key element with investment banks still debating the policy outlook.

MUFG noted the relatively dovish stance; “Unlike recent rhetoric from the ECB and Fed, the BoE is still placing more emphasis on the role played by tightening financial conditions in helping to dampen upside inflation risks and thereby dampening the need for policy action. The BoE’s is also somewhat surprised by the limited evidence of second round inflation effects although cautions that may not remain the case the longer energy prices remain elevated.”

It added; “It is the only major G4 central that has not yet raised rates in response to the energy price shock. The widening policy divergence may have contributed to the GBP sell-off after the BoE’s latest policy meeting.”

As far as market pricing is concerned, traders are pricing in around a 65% chance of a rate hike at the November meeting and are also backing four rate hikes by the end of 2026.

The Pound will be vulnerable if these expectations start to be scaled back.

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TAGS: Pound Euro Forecasts