Analysts warn that sterling could weaken further into year-end as markets underprice the risk of another Bank of England rate cut and fiscal strains weigh on sentiment.
MUFG said the pound may fall as investors are not fully pricing in the likelihood of a December rate cut. Noted that if inflation continues to ease and wage growth fails to rebound in upcoming data, the case for further policy easing will strengthen. The U.K.’s November 26 autumn budget could also reveal a drag from tighter fiscal settings, reinforcing pressure on the Bank to act. MUFG expects the euro to gradually appreciate against the pound as positioning shifts toward a dovish BoE outlook.
Rabobank also sees sterling facing headwinds, but from a different angle — fiscal sustainability. Said the U.K. is more exposed to market volatility than the eurozone given its current account deficit and heavy reliance on overseas financing. While France faces political and fiscal challenges, its balanced current account offers the euro relative insulation. By contrast, any instability in long-dated U.K. gilts linked to the autumn budget could exacerbate sterling’s weakness. Rabobank also forecasts a slow grind higher in EUR/GBP through 2026.
Together, the views suggest growing consensus that the pound’s late-2025 resilience could erode as macro fundamentals and fiscal dynamics align against it.
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Both MUFG and Rabobank see a softer pound into year-end as dovish BoE expectations and fiscal fragility weigh. Rising EUR/GBP forecasts point to modest euro strength, with the November budget likely to be a volatility trigger for U.K. assets.
