Insights 
VT 
The recent UK budget has stirred diverse reactions, with concerns about its inability to address economic growth. The immediate market response was stable, with the pound and long-term gilts seeing a rally as major policies do not take effect right away. However, Société Générale notes the absence of growth-focused measures, which could affect the pound’s future value.
Growth Outlook And Monetary Policy
The growth outlook is one of the factors influencing the pound’s value, with modest GDP forecasts for the UK and Eurozone at 1.1% and the US at 1.9% by 2026. Société Générale expects GBP and EUR to weaken against the USD, with projections showing GBP could move toward 0.9 in the coming months. The second factor is monetary policy. Analysts foresee more room for rate cuts in the UK than in other regions, predicting a 1% rate reduction by 2026, while market pricing anticipates a 60bp decrease.
Lastly, the pound is considered overvalued relative to purchasing power parity, which has increased for EUR/GBP. This overvaluation poses risks, given the historical corrections following periods of GBP weakness. Such corrections were evident during past financial and political crises.
We see the recent budget’s failure to address economic growth as a major headwind for the pound. While there was a brief rally in gilts and sterling, the underlying weakness is exposed by the latest ONS data. Third-quarter GDP for 2025 came in at a dismal 0.1%, reinforcing forecasts of a prolonged slowdown compared to the more robust US economy, which grew 0.6% in the same period.
Our view is that the Bank of England has more room to cut interest rates than the market is currently pricing for 2026. The October 2025 inflation reading dropped to 2.8%, and the latest MPC meeting minutes showed a split vote, suggesting a dovish pivot is near. This policy divergence with a more resilient US economy points to further downside for the GBP/USD pair.
Pound Value Against Euro
The pound also appears significantly overvalued against the euro, especially when looking at long-term purchasing power parity. We recall how similar overvaluations unwound violently during the 2008 financial crisis and after the 2016 Brexit vote, pushing EUR/GBP sharply higher. A political misstep, such as a failure to agree on future spending cuts, could easily be the catalyst that drives the pair towards the 0.9000 level.
In the coming weeks, we believe traders should consider positioning for sterling weakness, particularly against the dollar. Buying GBP/USD put options could be a prudent strategy to capitalize on the expected policy divergence and growth gap. For the EUR/GBP cross, looking at options that profit from a move higher seems logical given the building valuation and political pressures.
