BoE Hawkishness Drives GBP Gains Against Euro

UBS analysts believe that the Bank of England's (BoE) hawkish signals and higher interest rate differential against the Eurozone will continue to support sterling. At its September meeting, the BoE left the Bank Rate unchanged at 3.75%, but a 6-3 voting split was seen as hawkish, with three members preferring an immediate rate increase.

UBS expects the BoE to raise rates at both the November and February meetings, while the European Central Bank (ECB) is expected to continue moving in line with the Federal Reserve, limiting additional support for the euro. The UK currently offers roughly 1.5 percentage points of additional yield relative to the euro, creating a meaningful carry advantage for GBP investors.

UBS forecasts EUR/GBP at 0.84 in December 2026 and 0.85 in March, June, and December 2027, compared to its current spot rate of 0.86. The broker's Purchasing Power Parity estimate for EUR/GBP is 0.83, while its trend-extrapolated equilibrium exchange rate is 0.87.