– Written by
Frank Davies
STORY LINK British Pound to Euro Forecast: UK Growth Tipped to Slow after Strong First Half
The Pound to Euro (GBP/EUR) exchange rate was trading close to the important 1.1700 level at the start of the new week after stronger-than-expected UK growth data failed to trigger sustained Sterling buying.
GBP/EUR was around 1.1701 in early trading, having briefly moved above 1.1720 last week before giving back the advance.
Overall volatility has remained subdued, while elevated UK bond yields and uncertainty surrounding the autumn Budget continue to limit confidence in the Pound.
Markets are increasingly likely to focus on the autumn period, with major questions surrounding both UK fiscal policy and the Bank of England interest-rate outlook.
Rabobank senior strategist Jane Foley maintains a cautious stance towards Sterling; “Higher for longer oil prices may force the BoE to increase its tough talk against inflation, but so too would other central banks, suggesting that the forex reaction may still not favour the pound on all fronts.”
She added; “Uncertainty about the budget could keep the UK market nervous into the autumn and we would look to buy the euro/sterling on dips back to 0.85.”
EUR/GBP at 0.85 is equivalent to GBP/EUR around 1.1765, suggesting Rabobank sees Sterling gains towards this area as potentially difficult to sustain.
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The latest UK economic data provided a more encouraging growth signal than expected.
The Office for National Statistics reported that GDP increased by 0.3% in June compared with consensus forecasts for no monthly growth.
May’s estimate was revised down to show that the economy was unchanged rather than expanding by 0.1%.
Services output increased by 0.4% during June, while industrial production and construction both recorded modest declines.
For the second quarter as a whole, GDP expanded by 0.4%, in line with market expectations and following growth of 0.6% during the first three months of the year.
The figures left the UK on course to record the strongest economic performance among G7 economies during the first half of 2026.
Despite the positive headline figures, the Pound failed to secure a sustained advance, suggesting investors remain more concerned about the outlook for the second half of the year.
There is still considerable uncertainty surrounding the economic impact of the Iran conflict and the associated increase in global energy prices.
The ONS noted that the number of companies concerned about disruption had declined during June.
It stated; “In June 2026, 31% of businesses with 10 or more employees reported concern about international conflict affecting supply chains over the next year; this was a continued fall from the recent peak this April (38%).”
The temporary easing in Middle East tensions during June helped activity recover, although the subsequent increase in oil and gas prices poses a renewed threat to household incomes and company costs.
Deutsche Bank chief UK economist Sanjay Raja highlighted the stronger-than-expected first-half performance; “For a second straight quarter, it looks like the UK will take top place in the G7 league table.”
He added that forecasters were likely to make another modest upward revision to their full-year UK growth estimates, towards 1.1%.
Raja remains more cautious over the remainder of the year; “Looking ahead, while the UK economy has been on a tear lately, some slowdown remains likely – reflecting recent patterns in GDP data.”
He added that the energy shock was likely to catch up with households and businesses during the third quarter as utility bills and petrol prices squeeze disposable incomes.
Near-Term GBP/EUR Forecast: Inflation and Jobs Data Take Centre Stage
The stronger GDP figures have reduced immediate fears over the UK economy, but they have not materially improved sentiment towards Sterling.
Attention this week will shift towards UK labour-market and inflation data, which should provide clearer signals over the Bank of England outlook.
Markets currently expect the BoE to retain a relatively hawkish stance after three policymakers voted for an immediate rate increase at its latest meeting.
Stronger wage or inflation figures would reinforce expectations that UK interest rates will remain elevated and could allow GBP/EUR to challenge the 1.1750–1.1765 area.
Conversely, evidence that inflation pressures or the labour market are weakening could reduce expectations for further tightening and leave Sterling vulnerable.
The 1.1700 level remains the immediate technical focus.
A sustained break below this area would bring 1.1650 back into view, while a recovery above 1.1765 would strengthen the case for another challenge of the 1.1800 area.
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TAGS: Pound Euro Forecasts
