🎯 GBP/EUR year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. 📩 Request your copy.
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The British pound remains on the defensive against the euro, dollar and other major currencies following the release of quarterly growth data.
The UK economy eked out growth of 0.10% in the fourth quarter of 2025 said the ONS, disappointing against market expectations where 0.2% was pencilled in.
Services, the engine of the UK economy, showed no growth (0.0%) and construction contracted (-2.1%). However, there was some good news from production which grew (+1.2%).
Year-on-year, the economy grew 1.0%, but this was lower than the expected 1.2% advance and down sharply from the previous quarter’s annual growth rate of 1.3%.
Economist Andrew Sentance says these data confirm the 2020s are likely to see the UK deliver its worst growth performance since the 1920s – “the most dismal decade for growth in 100 years!”
The data comes after a difficult few days for most pound sterling pairs, however there are signs that a recent selloff is subsiding, with the UK currency opting to look through today’s numbers:
📉 The pound to euro exchange rate (GBP/EUR) trades at 1.1474, putting it flat on the day and down 0.36% for the week.
📉 The pound to dollar exchange rate (GBP/USD) trades at 1.3617, putting it flat on the day and week.
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These GDP data nevertheless confirm the pound faces a difficult fundamental backdrop: they confirm the economy came under notable pressure into the highly hyped November budget, and subsequent survey data showed some recovery after this point.
Hopes for a better start to 2026 are built around the belief that a post-budget relief bounce can inject some life into the economy at the start of the new year.
The pound came under pressure last week after the Bank of England acknowledged the country’s flat growth profile and deteriorating labour market in its latest policy update, indicating that it was close to lowering rates again.
Investors have since raised odds for a March cut and for a second cut later in the year, which typically weighs on UK bond yields and the pound.
Above: GBP performance over the past month.
Today’s data will verify that shift in expectations and ensure the pound stays under pressure.
“So long as the recent weakness in hiring, coupled with the sharp slowdown in wage growth, continues, we expect a March cut from the BoE, followed by another move in June,” says Francesco Pesole, FX Strategist at ING Bank. “Our view remains broadly bullish on EUR/GBP on the back of this.”
ING says 0.88 remains a very realistic short-term target for EUR/GBP, which is a move in GBP/EUR down to 1.1360.
The pound is also nervous about domestic politics, has struggled against the euro and its G10 peers, and over a one-week and one-month timeframe has only advanced against the dollar.
This speaks of ongoing headwinds, and until the economy enters a cyclical growth spurt, further bearish price action is likely.