MUFG sees closer EU ties supporting Sterling, while Crédit Agricole’s forecasts point to near-term caution before GBP/EUR gains in 2027.
A closer relationship with the European Union could give Sterling a source of support beyond higher interest rates, according to MUFG, although the October Budget presents a more immediate test.
The British Pound to Euro exchange rate (GBP/EUR) held near 1.1710 on Thursday, retaining Wednesday’s 0.38% gain and trading close to September’s high of 1.1713.
Currency analysts at MUFG highlight Prime Minister Andy Burnham’s willingness to discuss EU membership, the single market and a customs union.
“It opens up the possibility for a potential reverse-Brexit trade for the pound in the future.”
Burnham subsequently told ITV News that he would not rush decisions on Britain’s future relationship with Brussels, underlining the longer horizon for any economic benefits.
Nearer term, stronger UK growth has supported Sterling, with second-quarter GDP revised to 0.5% from 0.4%.
MUFG expects the Bank of England to begin raising rates in November, but flags the next fiscal announcement.
“Market focus will now shift to the upcoming Budget on 28th October which is an important event risk for the pound heading into year-end.”
Crédit Agricole’s latest outlook also warns against assuming that high yields guarantee further currency gains.
“The oversold GBP could remain vulnerable if growing political and stagflation risks fuel concerns about the UK economic and fiscal outlook.”
Its valuation assessment adds another caution.
“The GBP no longer looks cheap vs the EUR based on relative real rate differential and relative sovereign credit risk spread”
Nevertheless, its forecasts allow for stronger Sterling in 2027.
Crédit Agricole projects EUR/GBP at 0.86 in December 2026 and 0.84 in September 2027, equivalent to GBP/EUR of approximately 1.163 and 1.190 respectively.
Measured against today’s rate, that path implies a modest year-end retreat before gains next year, leaving room for an eventual improvement without dismissing the approaching Budget risk.
Our currency coverage draws on live market data, official economic releases and published bank research.
