British Pound to Euro Forecast: BoE Raises Rates to 4%, GBP Eyes 1.21

Modified: Thursday, 5 November 2026 17:21 BST - Written by David Woodsmith

STORY LINK British Pound to Euro Forecast: BoE Raises Rates to 4%, GBP Eyes 1.21

The Pound to Euro exchange rate (GBP/EUR) held close to 19-month highs around 1.20 after the Bank of England raised interest rates to 4.00% in a more hawkish vote than expected.

Pound Sterling remains supported by resilient UK economic data and persistent French fiscal concerns, although markets are now focused on whether policymakers will deliver further tightening in early 2027.

GBP/EUR Forecasts: Holding Near 19-Month Highs

The Pound to Euro (GBP/EUR) exchange rate remained close to the 1.20 level on Thursday after the Bank of England raised interest rates for the first time in more than three years.

GBP/EUR traded around 1.1980-1.2000, with Sterling retaining a firm underlying tone despite failing to secure a decisive break above the psychologically important 1.20 level.

The Monetary Policy Committee raised Bank Rate by 25 basis points to 4.00%, in line with market expectations.

The vote was more hawkish than anticipated, however, with eight members supporting the quarter-point increase and Catherine Mann voting for a larger 50 basis-point move to 4.25%.

The Pound reaction was relatively restrained because the November hike had already been fully priced.

The main focus shifted immediately towards the outlook for further tightening during 2027.

BoE Vote More Hawkish than Expected

Governor Andrew Bailey stressed that inflation risks remain elevated, particularly because of persistent energy pressures and the possibility of second-round effects on wages and prices.

The Bank warned that inflation could climb further over the coming quarters if the Middle East energy shock persists.

Markets continue to price several additional rate increases during 2027, although the Bank stopped short of endorsing the full amount of tightening embedded in the curve.

Oxford Economics UK economist Alexander Harvey had commented ahead of the decision; “While we don't expect a clear steer from the Committee on how many hikes they're planning, it's possible that the meeting minutes or Bailey signal that Bank Rate is unlikely to reach the level that is priced in by financial markets.”

Rabobank also remains much less aggressive than current market pricing; “Our central view is that following a November rate hike that the Bank is unlikely to move more than once more this cycle.”

Bank of America maintains a constructive medium-term view on Sterling and had warned that a dovish hike could weigh on GBP initially without necessarily causing lasting damage if UK fundamentals continue to improve.

The unexpectedly hawkish 8-1 vote reduced the risk of such a dovish interpretation.

Strong UK Data Keeps Sterling Supported

The latest UK business surveys also continue to provide underlying support for the Pound.

The final services PMI was revised slightly lower to 52.8 from the flash estimate of 53.1, but remained above September's 52.1 reading and at its strongest level for eight months.

Employment increased for the first time in just over two years, while input costs and selling prices continued to rise rapidly.

Tim Moore, Economics Director at S&P Global Market Intelligence, commented; “October data highlighted a combination of faster output growth and stronger price pressures across the UK service economy, mirroring the trends in the manufacturing sector.”

He added; “These signals underscore the near-certainty of a Bank of England rate hike in November and collectively raise the likelihood of further Bank of England policy tightening into 2027.”

That November hike has now been delivered, leaving the question of how quickly the Bank follows up.

Eurozone inflation also remains elevated.

Headline CPI increased to 4.0% from 3.8%, while core inflation held at 2.5%, keeping the possibility of another European Central Bank rate increase in December alive.

This should provide the Euro with some support, although continuing concerns over French fiscal policy remain a significant drag.

For GBP/EUR, the 1.20 area remains the immediate resistance level.

A sustained break above 1.20 would strengthen the bullish technical picture and bring 1.2050-1.2100 into focus.

On the downside, the 1.1900-1.1950 region should provide initial support.

For now, the combination of a hawkish BoE vote, resilient UK activity and continued Euro-specific political risks keeps the balance tilted in Sterling's favour.

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TAGS: Pound Euro Forecasts