Currency analysts believe the Pound Sterling could strengthen against the Euro before the Bank of England starts cutting interest rates again in 2027.
The Euro could fall to £0.84 by March 2027 under BNP Paribas’s forecasts, equivalent to the Pound buying roughly €1.19.
Its forecasts hold at that level for June and December, suggesting Sterling could retain those gains even as UK interest rates start falling again.
The British Pound to Euro exchange rate (GBP/EUR) traded near €1.1676 on Tuesday, down 0.13% on the day.
BNP Paribas’s nearer Euro to Pound forecast is £0.85 for December 2026, equivalent to approximately €1.1765 per Pound.
These are quarter-end projections, with the 2027 figures implying a gain of around 2% from Tuesday’s GBP/EUR rate.
A November hike, then cuts in 2027
BNP Paribas expects the energy shock to keep UK inflation above target, averaging 3.2% in both 2026 and 2027.
“We expect the BoE to deliver a single “insurance” hike in November 2026, bringing the Bank Rate to 4.00%, in response to the ongoing energy shock. We expect the BoE to resume easing in H2 2027, with two cuts taking the Bank Rate to 3.50% by end-2027.”
Tuesday’s UK labour market figures, released after BNP Paribas’s forecasts, showed a provisional 26,000 fall in August payrolls, while private-sector regular pay grew 2.9% annually in the three months to July.
That adds to the case for a BoE hold this week, although it leaves the longer-term energy inflation risk unresolved.
The ECB also has further tightening ahead in BNP Paribas’s view:
“Given persistent inflation and resilient growth, we anticipate another 25bp hike from the ECB in December 2026, bringing the deposit rate to 2.75%, followed by an extended pause.”
Under those forecasts, the UK’s policy-rate advantage narrows from 1.25 percentage points at end-2026 to 0.75 points a year later.
We think that presents a challenge for Sterling: holding its gains while receiving less support from the interest-rate gap.
Our currency coverage draws on live market data, official economic releases and published bank research.
