Why BoE Repricing and Political Risk Keep GBP Weak

Julius Baer also flags political risks as a separate drag on sterling. The UK faces an uncertain fiscal outlook. The government balances spending commitments against debt targets. Any sign of fiscal slippage – such as borrowing overshoots or delayed consolidation – could reignite the gilt selloff seen in previous episodes. Trade negotiations with the European Union and the United States add another layer of uncertainty. A breakdown in talks or new tariff threats would hit the pound disproportionately. The UK’s large current account deficit amplifies the effect.

These risks are not new. They have become more salient as the spring rally faded. The EUR/GBP pair’s failure to break below 0.8620 suggests the market is already pricing in some political premium. A clean break below that level would require a material improvement in the UK’s fiscal or trade outlook. Julius Baer appears to assign low probability to that scenario.

EUR/GBP Range and the Next Decision Point

The pair’s 2026 range – roughly 0.8620 to 0.8790 – remains intact. A move above 0.8790 would signal that the bearish GBP narrative is gaining momentum. A drop below 0.8620 would suggest the political and repricing headwinds are fading. The next scheduled BoE policy decision is the primary catalyst. Until then, EUR/GBP is likely to drift within the range. UK inflation and retail sales data will provide shorter-term volatility.

For traders positioning in the pair, the risk-reward favors watching for a break of the range rather than chasing the middle. The Julius Baer forecast reinforces the view that sterling faces structural headwinds. The market has already absorbed much of that news. A surprise – either from the BoE or from UK politics – would be needed to trigger a sustained move. For more context on how rate differentials drive currency pairs, see our forex market analysis and the EUR/GBP profile for updated levels.