EUR/GBP Steady as Markets Weigh Weak UK Growth

Key Moments

EUR/GBP trades near 0.8710 in a tight range, with the Pound slightly outperforming despite softer UK data.
Weaker UK GDP figures have strengthened expectations of a possible Bank of England rate cut in March.
Attention now shifts to preliminary Eurozone GDP data, with forecasts pointing to 0.3% QoQ and 1.3% YoY growth in Q4.

Cross Holds Firm Despite Softer UK Growth

EUR/GBP remains confined to a narrow range on Wednesday. Even so, the British Pound (GBP) is holding relatively firm despite weaker UK economic data. At the same time, broad US Dollar softness continues to shape overall foreign exchange sentiment. As of writing, the pair trades near 0.8710, with Sterling showing a modest edge over the Euro (EUR).

According to fresh data from the UK Office for National Statistics, monthly Gross Domestic Product (GDP) rose by 0.1% in December. This matched market expectations. However, November’s figure was revised lower to 0.2% from an earlier estimate of 0.3%.

Quarterly Growth Signals Slowing Momentum

Looking at the broader picture, preliminary figures show that UK GDP increased by 0.1% quarter-on-quarter in the fourth quarter. Although this matched the previous quarter’s pace, it fell short of forecasts for a 0.2% rise. Meanwhile, on a year-on-year basis, growth slowed to 1.0% from 1.2%.

As a result, the data suggest the UK economy lost momentum toward the end of 2025. While the slowdown is not dramatic, it reinforces concerns about fragile growth.

Weak Data Fuels BoE Rate-Cut Expectations

Consequently, softer growth has increased pressure on the Bank of England (BoE). Investors are now pricing in a higher probability of an interest rate cut as early as March. In particular, subdued activity and easing inflation risks give policymakers more room to act.

Nevertheless, the BoE is likely to remain data-dependent. Therefore, upcoming labor market and inflation figures could prove decisive.

Eurozone GDP in Focus

Meanwhile, market attention is shifting to the Eurozone. Preliminary fourth-quarter GDP data are due on Friday. Consensus forecasts point to growth of 0.3% quarter-on-quarter, unchanged from the previous reading.

On an annual basis, the economy is expected to expand by 1.3%, slightly below the prior 1.4% figure. If confirmed, this would indicate modest but stable growth across the bloc.

Region	Period	Metric	Latest / Expected	Previous
United Kingdom	December	Monthly GDP	0.1%	0.2% (revised from 0.3%)
United Kingdom	Q4	GDP QoQ	0.1%	0.1%
United Kingdom	Q4	GDP YoY	1.0%	1.2%
Eurozone	Q4 (prelim)	GDP QoQ	0.3% (expected)	0.3%
Eurozone	Q4 (prelim)	GDP YoY	1.3% (expected)	1.4%

ECB Commentary Offers Mild Support

Earlier on Thursday, comments from European Central Bank (ECB) officials provided limited support for the Euro. François Villeroy de Galhau said growth in the first quarter should align with an economy expanding at roughly 1% annually in 2026.

In addition, Gabriel Makhlouf noted that inflation is now close to target. He also said the ECB is in a favorable position regarding policy decisions.

Policy Outlook: Rates Seen on Hold

For now, the broader view is that the ECB will keep interest rates unchanged for an extended period. A Reuters poll conducted between February 9 and 12 showed that 66 of 74 economists expect the deposit rate to remain at 2.00% through 2026.

Therefore, markets do not anticipate a policy shift before 2027. This steady outlook may help anchor expectations in the months ahead.

Understanding the ECB’s Role

What does the ECB do?

The European Central Bank, based in Frankfurt, manages monetary policy for the Eurozone. Its primary goal is price stability. In practical terms, that means keeping inflation near 2%.

To achieve this, the ECB adjusts interest rates. Generally, higher rates support the Euro, while lower rates weigh on the currency. The Governing Council meets eight times per year to set policy.

QE and QT Explained

What is Quantitative Easing (QE)?

In extreme conditions, the ECB may use Quantitative Easing. Under QE, the central bank creates money to purchase assets such as government bonds. As a result, liquidity increases and the Euro often weakens.

The ECB deployed QE during the financial crisis, again in 2015 when inflation was too low, and during the pandemic.

What is Quantitative Tightening (QT)?

By contrast, Quantitative Tightening is the reverse process. During QT, the ECB stops buying new bonds and does not reinvest maturing ones. Consequently, liquidity declines. This policy is typically supportive for the Euro.