– Written by


Tim Boyer

STORY LINK Pound Sterling Forecasts Warn Crash vs Euro, Dollar on 1976-Style UK Crisis

The British Pound faces its most alarming warning in decades, with GBP analysts bracing for heavy losses against the euro and US dollar. A former Bank of England policymaker has drawn chilling parallels with the economic crash of 1976 – when the UK was forced into an IMF bailout. With inflation stuck near 4%, gilt yields heading towards 5%, and government borrowing spiralling, fears are growing that the Pound Sterling could be sliding towards a historic collapse.

Former Bank of England (BoE) Monetary Policy Committee (MPC) Andrew Sentance has warned that the UK will see a repeat of the 1976 economic crisis with bonds and the Pound sliding in tandem.

Rachel Reeves is on course to deliver a Healey 1976-style crisis in late 2025 or 26. Like Healey, she has massively boosted public spending, borrowing and taxes – fuelling both demand-pull and cost-push inflation. Unless policies are reversed we are heading for an economic crash!

— Andrew Sentance (@asentance) August 20, 2025

There was a mini scare in January, but Sentance has warned that this is just a taster for more severe turbulence within the next few months.

ING expects the Pound to Euro (GBP/EUR) exchange rate to slide to 1.11 by the end of 2026.

There are parallels with 1976 in weather terms as that year was famous or infamous for a prolonged period of hot weather and drought with the government appointing a minister for drought.

It’s also worth noting that this was followed by heavy rain and floods.

As far as the economy is concerned, 1976 marked economic humiliation for the Callaghan government with Chancellor Healey forced to run to the IMF for an emergency loan as the Pound plummeted in currency markets.

The pound collapsed amid a widening budget deficit, a yawning current account imbalance and stubbornly persistent inflation with the Bank of England unable to support growth via cuts in interest rates.

The government secured a $3.9bn loan, half of which was drawn down by the administration.

Andrew Sentance, who was well known as a very hawkish voice on the MPC has issued a stark new warning.

According to Sentance; “Rachel Reeves is on course to deliver a Healey 1976-style crisis in late 2025 or 26. Like Healey, she has massively boosted public spending, borrowing and taxes – fuelling both demand-pull and cost-push inflation. Unless policies are reversed we are heading for an economic crash!”

The latest official inflation data recorded headline and core inflation at 3.8%, but Sentence considers that the data is underestimating inflation.

Looking at a wider range of indicators, Sentance considers that inflation is already 4.1% and set to increase further.

The 10-year bond yield has increased to above 4.75% and close to 4-month highs. According to Sentence, the yield could increase to 5% before long.

The Pound posted sharp losses in January as fears surrounding UK economic policy increased.

As bond yields continue to move higher, the cost of debt servicing continues to increase. This risks a vicious cycle as bond markets and the Pound crash in tandem.

Sentance has also continued to criticise Bank of England policy.

According to Sentance; “The shocking surge in UK inflation continues. When will the MPC recognise that control of inflation requires policy action to bear down on price rises with interest rates. Cutting rates while inflation is rising is a perverse and irresponsible policy.”

Danske Bank is wary over UK fundamentals and expects GBP/EUR losses to 1.1235 on a 6-12-month view. According to Danske; “The key risk to seeing EUR/GBP trade substantially higher than our forecast is a sharp sell-off in global risk and/or renewed focus on the UK’s fragile fiscal position.”

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TAGS: Pound Sterling Forecasts

– Written by


David Woodsmith

STORY LINK 2025 Forecast: Pound Sterling to Strengthen Against Dollar, Not the Euro

The latest Pound Sterling forecasts point to a split outlook: analysts see the Pound to Dollar (GBP/USD) forecast turning more positive, while the Pound to Euro (GBP/EUR) forecast remains subdued. Markets expect Sterling to push higher against the US Dollar towards 1.39 over the next 12 months, but struggle to break above 1.16 against the Euro.

Consensus suggests a diverging path for Sterling, shaped by resilient UK economic data, stubborn inflation at 3.8%, and an uncertain Bank of England (BoE) policy outlook.

Pound to Dollar Forecast (GBP/USD)

The Pound to Dollar exchange rate failed to re-test the 1.36 level this week, retreating to near 1.34 amid a tentative dollar recovery. Nevertheless, consensus forecasts are for GBP/USD to strengthen to 1.39 on a 12-month view as markets anticipate lower Federal Reserve interest rates.

Not all banks are aligned: Wells Fargo expects GBP/USD will retreat to 1.30 by the end of 2026 on renewed dollar gains, while UBS sees scope for a move back to 1.39 by late 2025, citing “the outlook for lower Federal Reserve rates, White House policy uncertainty, and international investors raising hedge ratios for dollar assets.”

The Federal Reserve remains the key driver. Earlier in the week, markets were convinced that the Fed would cut rates in September, but stronger US data has cast doubt. Fed members remain split, with Cleveland Fed President Hammack stating current conditions “do not justify a rate cut at this stage.”

Markets are now pricing just over a 70% chance of a September cut. A cautious stance from Chair Powell at Jackson Hole could see the Dollar regain ground in the short term, but longer-term expectations still lean towards weakness, underpinning the more positive GBP/USD forecast.

Pound to Euro Forecast (GBP/EUR)

The Pound to Euro exchange rate has consolidated around 1.1570 after failing again to hold above 1.16. Consensus forecasts point to limited losses, with GBP/EUR seen at 1.15 on a 12-month horizon.

Danske Bank is more bearish, forecasting a retreat to 1.1235 within 6-12 months on the back of weak UK fundamentals. It argues that relative growth dynamics are turning against Sterling:
“We increasingly see domestic factors and the relative growth outlook between the UK and the euro area as becoming GBP negatives. This is further amplified by divergence in fiscal policy, with UK fiscal policy set to be tightened in the Autumn.”

Societe Generale also warns that Sterling’s underlying support is fading:
“GBP has decent short-term support, even if its medium-term support is rotting away in the face of a depressing fiscal outlook. Higher taxes are coming and so is slower growth and further GBP weakness.”

SocGen highlights the Euro’s strengthening base, noting that EUR/GBP support has risen steadily from 0.8250 early in the year to 0.86 by July. By the autumn, it expects support to climb to 0.87 — implying GBP/EUR below 1.15.

UK data continues to paint a mixed picture. Manufacturing PMI remains in contraction, while services activity hit a 12-month high. Inflation data came in stronger than expected at 3.8% for both headline and core, raising stagflation concerns.

The Eurozone, meanwhile, reported a 15-month high in its composite output index, supported by gains in both manufacturing and services despite ongoing global trade headwinds.

The Pound Sterling forecast remains finely balanced. Against the Dollar, expectations of Fed easing underpin projections for GBP/USD to strengthen towards 1.39, but short-term risks remain if Powell pushes back on cuts. Against the Euro, Sterling continues to struggle, with GBP/EUR likely capped around 1.15 and downside risks highlighted by Danske and SocGen.

For now, Sterling’s fate will rest on a tug of war between UK fundamentals, BoE caution, and external drivers from Washington and Frankfurt.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts

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USD/JPY Technical Analysis

The US dollar continues to take off against the Japanese yen. And if Jerome Powell sounds even remotely hawkish during the session on Friday, then that could send the US dollar screaming towards the 150.50 yen level. On a pullback, I would anticipate that the 50 day EMA offers support, followed by the 146 yen level.

AUD/USD Technical Analysis

The Australian dollar tried to rally during the session, but it looks like it’s going to give those gains up pretty quickly, as there just isn’t enough momentum to get the Aussie moving. Ultimately, I think you’ve got a situation here where you have to assume that market participants are looking at this through the prism of a market that just hasn’t performed well to begin with.

And therefore, it makes a lot of sense that the Australian dollar eventually gives up strength. Keep in mind that New Zealand just cut interest rates and that probably has people thinking the Australian dollar will suffer the same fate and that makes it a little weaker than other currencies in general.

Over the last year, we’ve seen the US dollar get hit pretty hard and with that, I think you have to believe that if the Australian dollar really couldn’t take advantage of it. If we start to see the US dollar strengthen, then the Aussie is really going to take it on the chin. As things stand right now, I like fading rallies, and I believe the 0.6550 level will continue to be resistant.

For a look at all of today’s economic events, check out our economic calendar.