Pound-to-Euro Rate Slips as OBR Cuts UK Growth Forecast to 1%

Modified: Wednesday, 28 October 2026 18:46 BST

– Written by


Frank Davies

STORY LINK Pound-to-Euro Rate Slips as OBR Cuts UK Growth Forecast to 1%

The Pound to Euro (GBP/EUR) exchange rate retreated from a 17-month high on Wednesday as Chancellor John Healey’s Autumn Budget revealed a weaker outlook for UK economic growth.

At the time of writing, GBP/EUR was trading at around €1.1938, having slipped from an overnight peak of €1.1957.

The Pound (GBP) came under pressure ahead of the Budget as investors remained cautious about the Chancellor’s plans for taxation, spending and government borrowing.

Sterling struggled to recover after the announcement, despite a relatively favourable initial response from UK financial markets.

Government bond yields edged lower following Healey’s statement, suggesting that investors were broadly reassured by the fiscal measures outlined.

However, the accompanying economic forecasts provided less encouragement for the Pound.

The Office for Budget Responsibility (OBR) cut its projection for UK GDP growth in 2027 from 1.6% to just 1%, highlighting the challenges facing the economy next year.

The substantial downgrade raised concerns that weaker economic activity could constrain tax revenues and complicate the government’s efforts to stabilise the public finances.

Slower growth could also make it more difficult for the Bank of England (BoE) to justify an extended period of monetary tightening, particularly if higher borrowing costs begin to weigh more heavily on households and businesses.

Although the decline in gilt yields offered some reassurance, the weaker growth outlook limited demand for Sterling and prevented GBP/EUR from returning to its overnight high.

The Euro (EUR), meanwhile, recovered modestly against the Pound after falling to a fresh 17-month low earlier in the session.

Greater stability in French government bond markets provided some relief for the single currency, with yields holding relatively steady after the recent surge in borrowing costs.

Nevertheless, France’s fiscal problems remain unresolved, with investors continuing to question whether the government can secure parliamentary support for its proposed budget measures.

The Euro also faced pressure from disappointing German consumer confidence figures.

Germany’s latest GfK consumer climate index fell from -30.6 in October to -30.8 for November, marking its weakest reading since May.

The deterioration suggested that households in the Eurozone’s largest economy remain concerned about their financial prospects, potentially limiting consumer spending in the months ahead.

However, the figures failed to trigger renewed selling in the Euro, allowing the single currency to retain its modest gains against Sterling.

Near-Term GBP/EUR Forecast: ECB Decision Could Test Sterling’s Recovery

Thursday’s European Central Bank (ECB) interest rate decision will provide the next major catalyst for the Pound to Euro exchange rate.

Policymakers are widely expected to leave borrowing costs unchanged, meaning the accompanying policy statement and comments from ECB President Christine Lagarde are likely to attract the most attention.

Investors will be looking for indications of whether the central bank remains prepared to raise interest rates again as it assesses persistent inflationary pressures and the impact of elevated energy costs.

A hawkish message suggesting that further tightening remains possible could provide the Euro with additional support, potentially pushing GBP/EUR back towards €1.1900.

However, a more cautious assessment of the Eurozone’s economic outlook could undermine demand for the single currency.

Comments addressing France’s ongoing debt problems may also influence trading, particularly if policymakers express concern about the potential for financial instability to spread across the currency bloc.

For Sterling, attention will remain on the market reaction to Wednesday’s Autumn Budget.

The decline in gilt yields suggests that the Chancellor’s fiscal plans have avoided an immediate negative reaction from bond investors, although the sharp downgrade to next year’s growth forecast could continue to weigh on sentiment.

With few major UK economic releases scheduled, the Pound may struggle to establish a clear direction as investors assess the implications of the Budget.

For GBP/EUR, the recent high near €1.1957 remains the immediate upside reference point, while a sustained move below €1.1900 could signal a deeper correction from Sterling’s recent highs.

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TAGS: Pound Euro Forecasts