British Pound to Euro Forecast: UK Inflation Could Hit 5% as BoE Raises Rates

Modified: Sunday, 8 November 2026 19:16 BST - Written by James Fuller

STORY LINK British Pound to Euro Forecast: UK Inflation Could Hit 5% as BoE Raises Rates

The Pound to Euro exchange rate (GBP/EUR) returned towards 1.2000 after the Bank of England raised interest rates to 4.00% and delivered a more hawkish message than markets had expected.

An unexpectedly strong 8-1 vote and warnings over rising inflation risks have increased the prospect of another hike as early as December, although ING and MUFG remain sceptical that the Bank will deliver the full tightening cycle priced by investors.

GBP/EUR Forecasts: Close to 19-Month Highs on Warnings of Further Hikes

The Pound to Euro (GBP/EUR) exchange rate edged lower into the Bank of England (BoE) interest rate decision, but then secured renewed gains after the decision with a fresh test of the key 1.2000 resistance area before settling close to this level.

The BoE vote split was slightly more hawkish than expected and a further hike in December is now seen as a coin toss, although longer-term guidance was limited.

Given the number of rates priced in, ING expects GBP/EUR will stabilise around 1.19.

The BoE Monetary Policy Committee (MPC) raised interest rates by 25 basis points to 4.00%, in line with strong consensus forecasts.

There was a 8-1 vote for the move as Mann voted for a larger 50 basis-point hike to 4.25%. Markets were expecting a 7-2 vote with the potential for Dhingra and Taylor voting to leave rates on hold.

According to the BoE, the risk of second-round effects emerging has risen since September. Chief economist Pill stated that a single rate hike was unlikely to be sufficient. Lombardelli, who is one of the key centrist members, also commented that there is likely to be a case for more hikes in the near term unless there is evidence of weaker inflation pressures..

The bank raised its inflation forecast from the previous meeting and commented; “It is now expected to rise to around 5% by the middle of next year.

Following the decision and commentary, markets are now pricing in a 50% chance of a second successive move in December.

MUFG commented; “Our base case remains another 25bp hike in February, taking Bank Rate to 4.25%, which we see as the terminal rate. We don’t dismiss the possibility of a back-to-back move in December with plenty of key data releases between meetings.”

According to ING; “we expect one further rate hike by February. A renewed spike in energy prices could bring that forward to December. However, we're still sceptical that the Bank will need to hike more than once more.”

MUFG looked at the medium-term view; “Market pricing of around four hikes by mid-2027 still looks rich to us. It would require more concrete evidence of broadening inflation risks. Our base case remains that tightening is conducted on an insurance basis to lean against risks of price pressures broadening. If second-round effects remain contained, we see scope to gradually reverse some of that tightening later in 2027.”

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TAGS: Pound Euro Forecasts