EU and UK GDP

EU and UK GDP

What effects on the EUR/GBP exchange rate (data as of 14 August 2025 and outlook)

The analysis of the Gross Domestic Product (GDP) performance in the euro area (Eurozone), the European Union (EU), and the United Kingdom (UK), updated to 14 August 2025, provides interesting insights to assess possible future developments in the euro/sterling (EUR/GBP) exchange rate, considering macroeconomic projections for the coming years.

Official data updated as of 14 August 2025

• United Kingdom (UK):
• Real GDP in the second quarter of 2025 grew by 0.3% compared to the previous quarter, exceeding expectations of 0.1%.
• Annual growth, compared to the same quarter in 2024, stood at 1.2%, also above the forecast of 1.0%.
• Eurozone:
• The latest projections from the European Commission indicate real GDP growth of 0.9% for 2025 (down from the 1.3% forecast in autumn), with a recovery to 1.4% in 2026.

Future projections 2025–2026

Eurozone / EU

• European Commission: growth of 0.9% in 2025, rising to 1.4% in 2026.
• OECD (Organisation for Economic Co-operation and Development): expansion of 1.0% in 2025 and 1.2% in 2026.
• Conference Board: growth of 0.9% in 2025, accelerating to 1.3% in 2026.

United Kingdom (UK)

• IMF (International Monetary Fund): forecasts growth of 1.2% in 2025 and 1.4% in 2026.
• OBR (Office for Budget Responsibility): more cautious, with 1.0% in 2025 and 1.9% in 2026.
• NIESR (National Institute of Economic and Social Research): centered on 1.2% in 2025 and 1.5% in 2026.
• Downside scenarios (US tariffs): EY Item Club estimates GDP at 0.8% in 2025 and 0.9% in 2026, below the more optimistic forecasts.
• IMF – tariff impact: warns that Trump tariffs could reduce UK GDP by about 0.3 percentage points by 2026.

Comparative summary: growth outlook

Implications for the EUR/GBP exchange rate

• The stronger growth expected for the UK compared to the Eurozone in 2025–2026 tends to support the pound sterling against the euro, especially if macro fundamentals (inflation, monetary policy) remain more favorable.
• The BoE (Bank of England) appears reluctant to cut rates further: some economists expect the first cut only starting in 2026, in a context of high inflation (around 3.6% by mid-2025), which could prolong support for sterling.
• Meanwhile, the ECB (European Central Bank) is expected to keep rates stable until December 2025, with a possible reduction afterwards — this monetary policy differential further strengthens the British currency.

EUR/GBP exchange rate forecasts:

• If UK growth remains stronger, the pound could continue to appreciate against the euro, making a stronger sterling in the medium term the most likely trend.
• In slowdown scenarios (e.g., more aggressive US tariffs), the Eurozone may be relatively less affected, softening the euro’s decline versus the pound.
• The monetary policy differential (later BoE, cautious ECB) suggests further pressures in favor of sterling, especially in the absence of signs of UK macro weakness.

In summary

The latest data update of 14 August 2025 highlights a relatively favorable dynamic for the UK, with Q2 growth above expectations (+0.3%) and stronger annual growth (+1.2%). The 2025–2026 forecasts suggest a slightly better trend for the UK compared to the Eurozone, translating into potential pound strengthening against the euro. However, risks remain, especially linked to US trade protectionism and persistent inflation uncertainties. In a context of interest rate differentials consistently favoring the UK, sterling remains well positioned to hold or outperform the euro in the short to medium term.