British Pound Forecast: Pantheon Sees $1.36 and €1.18 by December
Pantheon expects the Pound to recover against the US Dollar by December, judging that weaker UK confidence signals slower spending rather than a collapse.
The Pound-to-Dollar exchange rate slipped below $1.33 on Wednesday, trading at $1.3296 ahead of the UK Budget after Tuesday’s 0.30% decline.
Pound to Dollar (GBP/USD): 1.328312 (-0.17%)
Dollar to Yen (USD/JPY): 157.85743 (-0.09%)
Independent economic consultancy Pantheon Macroeconomics nevertheless forecasts GBP/USD at $1.36 and GBP/EUR at €1.18 at end-December 2026, with its assessment of household spending offering a less pessimistic reading of the domestic economy than the latest confidence survey suggests.
That leaves the Budget confronting a slowing consumer economy rather than one Pantheon believes has already stalled.
Its December Dollar forecast is also stronger than those of BNP Paribas and Crédit Agricole, whose separate projections put GBP/USD at $1.34 and $1.31 respectively for the same date.
Confidence has fallen faster than the underlying economy
GfK’s consumer confidence index dropped to -24 in October from -13 in September, a move that would normally suggest stagnant or slightly falling spending.
Pantheon’s chief UK economist Robert Wood is reluctant to take that implication at face value.
“In our view, higher energy prices are weighing on spending, as is the prospect of interest rate rises. But we would recommend taking the sharp drop in confidence cautiously, despite the survey’s record. Spending growth will slow, but we doubt it is collapsing.”
His analysis separates confidence explained by income, wealth and interest rates from changes in sentiment not accounted for by those fundamentals.
Wood writes: “The fundamentals-based measure slid by just two points in October, to -24 from -22 in September, as inflation weighed on household finances.”
“So, about nine points of the headline fall reflected the unwinding of the ‘Burnham bounce’, rather than a sudden deterioration in fundamentals.”
The latest official retail figures show both sides of the argument, with volumes falling 0.4% in September but rising 0.7% across the third quarter.
Wood also finds that “consumer spending has tracked the more optimistic under-50s’ confidence more closely than the pessimistic over-50s’ balance since the two diverged in mid-2024”.
“Younger people’s confidence in October suggests weak-but still rising at least-retail volumes growth, in contrast to headline confidence.”
Within the survey, views on making a major purchase have held up better than assessments of the general economy.
Wood acknowledges: “Consumers could be anticipating a rise in unemployment that has yet to appear. But the recovery in hiring intentions gives us another reason to doubt that interpretation.”
The Budget still has to preserve fiscal confidence
The Budget on Wednesday is the immediate test of how the government balances pressure on household finances with the need to reassure bond investors.
Pantheon expects less room against the fiscal rules, rather than a substantial rebuilding of that buffer.
“We expect the Chancellor to cut fiscal headroom in the Budget to £19B, from £23.9B previously. Higher interest payments and other public spending should outweigh any inflation boost to tax receipts.”
Those are pre-Budget estimates, with the measures and official projections still to be announced on Wednesday morning.
A credible settlement could reduce one source of uncertainty for Pound Sterling, but measures that further constrain household demand would also test Pantheon’s view that spending can keep growing.
That tension sits behind the short-term downside risk Scotiabank identified ahead of the Budget, although its technical assessment and Pantheon’s December forecast address different horizons.
BNP Paribas also expects domestic growth to slow, even as its currency forecasts allow for a recovery.
BNP’s economists write: “The economy has so far weathered both the energy price shock and domestic political volatility.”
BNP expects energy costs and second-round effects to keep inflation above target.
“In response, we expect the BoE to deliver a single insurance hike in November 2026, bringing the Bank Rate to 4.00%.”
“The BoE is then expected to resume easing in H2 2027, with two cuts taking the Bank Rate to 3.50% by end-year.”
The bank’s currency analysis states: “By contrast, GBP/USD would see relative support underpinned by a modest fiscal risk premium under the new Labour government, and resilient growth.”
Crédit Agricole’s lower December projection shows that this is not a uniform recovery call across forecasters, while its longer-term path also allows Pound Sterling to regain ground during 2027.
What This Means for GBP/USD and GBP/EUR
Pantheon’s $1.36 forecast requires Pound Sterling to reverse its latest losses against the Dollar before December ends. A Budget that reassures gilt investors without provoking a sharper deterioration in household demand would fit more comfortably with that outlook than a renewed fiscal or consumption shock.
Against the Euro, Pantheon’s €1.18 projection sits below the roughly €1.19 levels seen in this week’s GBP/EUR resilience amid French fiscal pressure. Its outlook therefore allows a Dollar recovery alongside some erosion of Pound Sterling’s recent strength against the Euro.
Pantheon sees weaker spending growth, not renewed strength, and its more reassuring interpretation of confidence would become harder to sustain if households’ concerns about unemployment began to show up in hiring and actual expenditure.
