British Pound to Euro Forecast: GBP 16-Month High as BoE Rate Hike Looms

Modified: Thursday, 22 October 2026 17:16 BST - Written by Frank Davies

STORY LINK British Pound to Euro Forecast: GBP 16-Month High as BoE Rate Hike Looms

The Pound to Euro exchange rate (GBP/EUR) has surged to fresh 16-month highs near 1.1930 as stronger UK inflation reinforced expectations of a November Bank of England rate hike.

Pound Sterling has also benefited from improving sentiment towards UK growth and continued concerns over French public finances, with investors now looking towards resistance at 1.1965 and the psychologically important 1.2000 level.

GBP/EUR Forecasts: Fresh 16-Month High

The Pound to Euro (GBP/EUR) exchange rate has continued its dramatic run with gains to a fresh 4-month high near 1.1930. French fears continue to hamper the Euro while Pound sentiment remains firm with a further covering of remaining short positions after the latest inflation data..

ING noted a shift in market sentiment; “While French risk is playing a role, the pound is emerging as an outperformer in G10. Markets are sinking their teeth into a positive UK growth story and BoE tightening alongside expectations that next week’s budget won’t deliver any real surprises.”

According to MUFG; “The latest developments remain favourable for the pound to strengthen further in the near-term.”

The May 2025 GBP/EUR high was around 1.1965 with further resistance close to the 1.2000 level.

Markets will still be watching UK bond markets and equities closely amid global geo-political fears and elevated energy prices with Brent continuing to trade above the $100 p/b level.

The headline UK inflation rate increased to 3.5% for September from 3.1% previously and slightly above consensus forecasts of 3.4%. The core rate increased to 2.8% from 2.6%, in line with market expectations.

The main upward pressure came from increases in fuel prices during the month. The goods inflation rate increased to 3.2% from 2.7% previously with the services-sector reading at 3.7% from 3.2%.

MUFG commented; “We expect inflation to pick up further rising above 4.0% next year once the energy price cap is reset higher again. The breakdown of the report also revealed that core inflation and services inflation both picked up to 2.8%and 3.7% respectively in September.

It added; “The release of the latest UK CPI report this morning should seal the deal for a hike next month.”

Scotiabank added; “Greene, alongside Pill and Mann have supported tightener policy since the summer and look set to get their wish at the November 5th MPC.”

According to ING; “The Bank of England is set to hike rates in November and probably February too. But assuming second-round effects stay contained, we think officials will return to rate cuts by the end of 2027.”

The latest government borrowing data was also released with a September reading of £24.5bn compared with consensus forecasts of £23.8bn.

For the first half of fiscal 2026/27, the borrowing requirement declined to £97.8bn from £102.2bn last year, although this figure is £6.0bn above the OBR forecast.

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TAGS: Pound Euro Forecasts