Pound to Euro Exchange Rate Forecast: "Strengthen to 1.2350" on 12-month Timeframe

March 23, 2025 - Written by David Woodsmith

STORY LINK Pound to Euro Exchange Rate Forecast: "Strengthen to 1.2350" on 12-month Timeframe

Foreign exchange analysts at Danske Bank forecast that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2350 on a 12-month view.

ING, however, expects a limited GBP/EUR retreat to 1.19 by the first quarter of 2026 amid budget tightening and more-than-expected Bank of England (BoE) rate cuts.

GBP/EUR secured a limited net gain to 1.1925 during the week.

Fiscal and monetary policies will both be key elements over the next few months.

The BoE held interest rates at 4.50% at the latest meeting, in line with consensus forecasts.

The bank highlighted uncertainty both domestically and globally while also expressing some reservations over inflation trends.

Danske Bank commented; “We continue to expect the BoE to deliver the next 25bp cut in May and deliver quarterly rate cuts at the meetings associated with updated economic projections. We expect the Bank Rate to end the year at 3.75%.”

The German parliament approved major changes to the constitution which will exempt defence and infrastructure spending from the fiscal break.

This shift includes a EUR500bn for infrastructure spending over 12 years.

The EU Commission also introduced plans to increase defence spending by up to EUR 800bn in four years by relaxing debt rules and utilising EUR 150bn of EU loans.

Nordea sees a significant growth boost; “For the Euro area as a whole, the positive impact for growth in 2026 could be around 0.5% points, a few tenths for this year, though again a lot depends on how confidence evolves.”

Standard Chartered expects capital inflows; “This week’s historic German parliamentary vote could boost the economy’s annual growth by around 2%. Although the rest of Europe remains constrained by high debt levels, sustainably faster growth in Europe’s largest economy portends a partial reversal of global fund flows back to the region.”

Nordea now expects only one further ECB cut in April.”

It also sees upside risks; “Like discussed above, we think the recent developments balance some of the earlier downside risks to our baseline forecasts. That said, there is now a new upside risk that could potentially lead to even rate hikes during our forecast horizon late this year or 2026.”

Danske Bank expects a very limited short-term impact; “the fiscal shift in Germany and the broader euro area is unlikely to take effect for at least another year due to implementation lags in public investment.”

UK fiscal policy will also be a key element with the budget statement on March 26th.

The latest data on government borrowing recorded a further deterioration from the target.

ING commented; “The Treasury has likely lost all of the £10bn 'headroom' it had available under its fiscal rules last October, following a rise in government borrowing costs over the winter.”

The bank does expect welfare cuts and limits to medium-term departmental spending growth will allow Chancellor Reeves to meet the target.

ING is, however, still concerned over the medium-term outlook; “If the scope to cut public spending becomes more limited, the Treasury struggles to convince the OBR to upgrade its growth forecasts, and it is reticent to make further changes to its fiscal rules, then that leaves one final option: raise taxes. Indeed we think that's now inevitable in the autumn, and the only question is which taxes will end up rising.”

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TAGS: Currency Predictions Pound Euro Forecasts