British Pound to Euro Forecast: GBP/EUR Resists Selling Despite UK Debt Fears

Modified: Wednesday, 23 September 2026 17:31 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: GBP/EUR Resists Selling Despite UK Debt Fears

The Pound to Euro exchange rate (GBP/EUR) has held just above 1.1650 despite a larger-than-expected UK borrowing deficit intensifying concerns ahead of next month's Budget.

Pound Sterling has shown resilience despite record August debt-interest costs, but the combination of diminishing fiscal headroom and what ING considers excessive Bank of England rate-hike pricing leaves the Pound vulnerable over the coming weeks.

GBP/EUR Forecasts: Resists Selling Pressure

The Pound to Euro (GBP/EUR) exchange rate was held in tight ranges on Tuesday and failed to make headway, trading just above 1.1650 amid unease surrounding the debt position.

Higher than expected borrowing data hampered Sterling despite a dip in energy prices.

ING still expects a GBP/EUR retreat to 1.15 over the next few weeks on fiscal and monetary grounds.

The UK public sector borrowing requirement increased to £18.3bn for August from £15.4bn the previous year and above consensus forecasts of £15.3bn.

The first five months of the fiscal year borrowing declined to £77.3 bn from £79.5bn the previous year, but £8.1bn above the OBR forecast.

Debt interest payments increased to £8.8bn for the month, the highest August figure on record.

According to the ONS; “On the month, borrowing was up by almost a fifth on last August, as spending increased more than government income partly reflecting the impacts of inflation.”

RSM UK chief economist Thomas Pugh commented; “The chancellor has probably lost about half the headroom he inherited, leaving it between £10bn to £15bn. As long as the headroom is in double figures, he will probably be able to avoid topping it up, but the drop in headroom means any additional day-to-day spending, such as on defence or cost of living, will have to be paid for by higher taxes.”

According to IG chief market analyst Chris Beauchamp; “Everyone can diagnose the problem, but it’s far from clear that a PM who swept to power promising good things for all is capable of holding a fractious Labour party together to carry out the tough work needed.”

According to Capital Economics deputy chief UK economist Ruth Gregory; “We think borrowing will be about £125bn (3.9% of GDP) in 2026/27 (OBR forecast £115bn) and that the Chancellor will need to raise between £9-14bn in the Budget to restore his existing fiscal headroom.”

ING noted; “In the coming weeks, we’ll hear more about the content of the UK October budget. The pound isn’t embedding any fiscal risk premium for the moment.”

ING also expects monetary policy will be a key element; “Markets are attaching a large probability of a BoE rate hike in November (c.75%) and a huge 92bp by June. Our economists’ call is still for no rate increase, which results in a bearish GBP outlook as our baseline.”

It added; “Even if another oil price jump prompts a November move, it seems unlikely the BoE will match market expectations for further tightening, meaning some large dovish repricing should still occur at some point.”

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TAGS: Pound Euro Forecasts