Bank of Ireland forecasts steady rates, currency shifts, and fiscal risks in 2026 outlook.
Bank of Ireland’s latest economic briefing today (19 September 2026) led by group chief economist Conall Mac Coille and senior dealer in Corporate & Commercial Banking Michael Savage outlined a cautious outlook for interest rates, exchange markets, and fiscal policy across major economies heading into 2026.
The session, which comes on the heels of Bank of Ireland’s latest Global Watch report, provided customers with detailed projections and risk assessments, particularly in light of evolving global trade dynamics and political developments.
“The US is living beyond its means. Trade deficits, current account deficits, and large federal deficits are all contributing to a fragile fiscal position”
Mac Coille opened with a clear message: “The easing cycle is over for now. We expect the ECB to hold rates at 2% through at least mid-2026.”
He noted that while the Federal Reserve is likely to cut rates to 3.5% by mid-2026, the risks to inflation in the US remain tilted upward. “We’re not going as far as the market in expecting a 3% rate by year-end,” he said.
In the UK, inflation remains a concern. “We don’t see the first rate cut from the Bank of England until February next year,” Mac Coille said. He projected a reduction to 3.5% by the end of Q2 2026, with Sterling expected to trade within the 84 to 89 pence range against the euro.
Currency markets: Dollar weakness and euro strength
Savage described 2025 as a year defined by a weakening dollar. “It’s been pretty much a straight line down for the dollar from the early part of the year,” he said. He attributed this to investor concerns over US fiscal policy and the Federal Reserve’s independence, which have reduced the dollar’s appeal as a safe haven.
Mac Coille added: “We expect the euro to push above 1.20 against the dollar in 2026. The ECB is on hold while the Fed is cutting, and that interest rate differential will drive the move.” He also pointed to the Trump administration’s volatile policymaking as a factor influencing investor sentiment.
Sterling, meanwhile, is expected to remain within its established range. “The November 2026 UK Budget could push sterling toward the top of that range,” Mac Coille said, though he does not anticipate a breakout above 90 pence.
Fiscal risks: US and UK under pressure
The briefing highlighted growing concerns over fiscal sustainability in both the US and UK. Mac Coille warned: “The US is living beyond its means. Trade deficits, current account deficits, and large federal deficits are all contributing to a fragile fiscal position.” He referenced the Mar-a-Lago Accord and potential restructuring of US debt as risks that could disrupt financial markets.
In the UK, the upcoming Budget is expected to include significant fiscal adjustments. “A £20bn adjustment is probably the minimum,” Mac Coille said. He noted that the Labour Party may opt for a larger adjustment early in its term, which could depress growth and influence currency markets.
Savage added: “We’ve already seen volatility around UK fiscal headlines. The lead-up to Budget day is likely to bring more headline risk, not just the day itself.”
Inflation and tariffs: A watchful eye on US policy
Mac Coille addressed the impact of tariffs on inflation, stating: “The average effective tariff rate from the United States is currently 19%. Estimates suggest this could add two percentage points to consumer prices over time.” He emphasised that the full impact has yet to be felt and that supply chain complexities could amplify inflationary pressures.
On the pharmaceutical sector, he noted: “A 15% tariff for Ireland is a key issue. Whether pharmaceuticals get included remains uncertain.” He pointed to President Trump’s directive for US pharmaceutical companies to lower drug prices to international levels as a potential shift in focus away from tariffs.
Irish economy: Strong growth, emerging constraints
Ireland’s economy continues to perform strongly, driven by the pharmaceutical sector.
“We’re set for another double-digit year of GDP growth,” Mac Coille said. However, he cautioned that jobs growth is slowing. “We’ve seen a break-like pace, down from 3% to 2.3% in Q2.”
He also flagged a slowdown in tax revenue growth. “Corporate tax growth is just 1% year-to-date. It’s very unlikely to match expenditure growth of 6 to 7%,” he said, suggesting a more cautious approach ahead of the budget.
Market strategy: Managing risk through ranges
Savage emphasised the importance of understanding currency ranges for risk management. “We’ve seen customers benefit from knowing these ranges and using them to manage interest rate risk,” he said. He highlighted the euro-dollar range of 1.1680 to 1.1820 as particularly relevant, with strong support and resistance levels guiding client decisions.
In sterling markets, he pointed to a concerning trend. “The breakdown in the relationship between 30-year gilt yields and sterling is a worrying sign. It suggests a headwind for the currency,” he said.
Navigating a changing landscape
The briefing concluded with a reminder that customers should engage with relationship managers to navigate the evolving landscape.
“There’s a lot of headline risk between now and the UK budget,” Savage said. “Working within established ranges and planning ahead is key.”
Mac Coille summed up the outlook: “We’re in a period of relative stability in Europe, but significant risks remain in the US and UK. Clients should stay informed and proactive.”
- Bank of Ireland has developed a team within its Corporate & Commercial Banking division with deep expertise in helping customers to manage these financial risks, offering a broad range of product solutions and market insights. Our teams of expert relationship managers in collaboration with our treasury product specialists are prepared to support clients during this period of heightened market volatility.
-
Bank of Ireland is welcoming new customers every day – funding investments, working capital and expansions across multiple sectors. To learn more, click here
-
For support in challenging times, click here
-
Listen to the ThinkBusiness Podcast for business insights and inspiration. All episodes are here. You can also listen to the Podcast on:
-
Spotify
-
SoundCloud
-
Apple
