British Pound to Euro Forecast: MUFG Eyes EUR/GBP Move Into 0.82-0.84 Range
Stronger UK economic momentum could help Pound Sterling against the Euro, but ambitious rate expectations and the Budget could limit further gains.
The Pound to Euro exchange rate was trading at €1.1930 on Wednesday, up 0.15%, leaving it just inside the stronger trading range under consideration at MUFG.
The advance followed Tuesday’s gains after the UK jobs surprise, with Wednesday’s inflation release adding to the evidence confronting Bank of England policymakers.
MUFG senior currency analyst Lee Hardman wrote before the CPI figures: “EUR/GBP is currently attempting to break into a new lower trading range between 0.8200 and 0.8400 that was last in place between September 2024 and April 2025.”
Inverting those levels gives a GBP/EUR range of approximately €1.1905-€1.2195, calculated by Exchange Rates UK.
Wednesday’s price was near its lower edge, equivalent to EUR/GBP around 0.8382.
Hardman’s assessment describes an attempt to establish a different trading range, without a deadline for reaching its far end.
Stronger UK activity meets demanding rate expectations
MUFG’s argument rests on evidence that employment may finally be catching up with economic growth.
Hardman writes: “For most of this year the performance of the UK economy and labour market has been diverging with the labour market remaining weak even as the economy has grown strongly.”
September payrolls rose by 13,000, while August’s initially reported decline was revised away.
“While the monthly data can be volatile and prone to revisions, the pick-up is consistent with recent surveys pointing towards stabilization in labour market conditions.”
The inflation figures released on Wednesday 21 October showed annual CPI rising to 3.5% from 3.1%, with motor fuels making the largest upward contribution to the change.
Services inflation also accelerated, to 3.7% from 3.4%, leaving policymakers with more to consider than the direct cost of energy.
Before the release, Lloyds’ senior UK economist Nikesh Sawjani identified the policy risk:
“The outlook for Bank Rate continues to hinge primarily on developments in the Middle East, their implications for energy prices and whether higher costs generate second-round effects in domestic wages and prices.”
“The Bank has similarly emphasised that the policy response will depend on the scale and duration of the energy shock and how it feeds through to the economy.”
Hardman had written: “We continue to expect the BoE to hike rates next month and deliver a second hike early next year.”
“A view that is already well priced into the UK rate market which is anticipating even more tightening and has almost three hikes priced in by March of next year.”
That pricing assessment preceded Wednesday’s CPI, but it identifies a constraint on further currency gains: delivering the two increases MUFG expects would fall short of the path investors had anticipated.
The Bank’s next decision is on 5 November, with Bank Rate currently at 3.75%.
Sawjani nevertheless cautioned against treating stronger employment as proof that a longer tightening cycle was needed.
Sawjani writes: “Even so, there remains limited evidence of a renewed build-up in wage pressures. Private sector pay growth remains well below the rates seen in recent years, while falling vacancies and still-subdued hiring demand should continue to limit upward pressure on wages.”
For Pound Sterling, the risk is that investors reduce expectations for later increases even if the Bank raises rates in November, weakening the currency’s prospective interest-rate support.
The Budget condition has become more pressing
Ahead of the 28 October Budget, Hardman writes: “Positive cyclical economic momentum in the UK remains favourable for a stronger pound as long as the government ‘s upcoming Budget doesn’t undermine confidence in the credibility of their fiscal consolidation plans.”
Wednesday’s public-finance figures showed borrowing over the first six months of the financial year was £6 billion above the OBR’s forecast, although it remained below the equivalent period last year.
Stronger growth has therefore not removed the pressure to explain how spending commitments will be funded.
The distinction between higher yields driven by expected BoE increases and those caused by doubts about public finances was central to our earlier assessment of the Budget’s credibility test.
If investors demand extra compensation for fiscal risk, rising UK borrowing costs need not attract buyers of Pound Sterling.
What This Means for GBP/EUR
GBP/EUR has crossed the approximate €1.1905 threshold corresponding to EUR/GBP at 0.8400. Sustained trading above it would support MUFG’s assessment that the pair is establishing a higher range, rather than merely extending a short-lived rally.
A return below that threshold would weaken the immediate range argument, particularly if investors scale back their expectations for BoE increases beyond November. Lloyds’ caution on hiring gives that risk an economic basis despite the stronger headline data.
A November rate rise that investors already expect may offer limited fresh support for progress towards the upper end of the calculated range. The Budget comes first, testing whether confidence in the UK’s economic recovery can survive scrutiny of its finances.
