Pound Euro (GBP/EUR) Improves as UK GDP Grows Unexpectedly
The Pound Euro (GBP/EUR) exchange rate firms modestly as the UK economy grew by 0.1%, beating forecasts of a 0.2% slump.
At time of writing, the GBP/EUR exchange rate is around €1.1278, a 0.29% climb from this morning’s opening levels.
Pound (GBP) Lifted by Surprise GDP Growth
Pound (GBP) investors finally had something to cheer about as GDP growth figures beat expectations and grew by 0.1%. Despite a slowing rate of growth since the 0.5% expansion in October, forecasts of a 0.2% shrink pleasantly surprised the market.
The World Cup provided an unusual winter boost as consumers headed to the shops and bars in the run-up to Christmas. However, the onset of a manufacturing sector recession capped any significant gains for the economy. The sector saw a contraction of 0.3% in the three months leading up to November. Surging energy costs and sky-high inflation weighed heavily on manufacturing in the latter part of 2022.
However, despite easing the recession risk slightly, the UK is still bracing for a tough year ahead. Inflationary pressures are yet to ease, and economists are expecting the UK’s output to fall by 1.4% in 2023. Ed Monk, Associate Director at Fidelity International, commented:
‘The UK economy is doing its best to avoid falling into a technical recession with another month of growth in November. (However), it doesn’t change the fact that it is likely to be an extremely painful year for the economy.’
Euro (EUR) Supported by Expanding German Economy
Meanwhile, the Euro (EUR) drew some modest strength from news that Europe’s largest economy grew by 1.9% in 2022, above market expectations. However, the figure slowed considerably from 2021’s 2.6% expansion. Economy Minister Robert Habeck is hopeful that Germany could escape a recession, at least over winter. Habeck added:
‘The economic slowdown over the winter half-year will, according to the data we have now, be milder and shorter than expected.’
Europe was heavily impacted by a severe energy crisis due to the war in Ukraine. This of course was compounded by high inflation throughout 2022. Further propping up the Euro was better-than-expected industrial production MoM in November. Rebounding from a 1.9% decline in October, the sector recorded its best performance in three months.
Pound Euro Exchange Rate Forecast: Domestic Headwinds to Sour Sterling?
Looking ahead, the Pound Euro exchange rate could be left to domestic pressures as the trading calendar winds down for the weekend. Without any further data, both the Euro and the Pound will be left susceptible to external pressures.
Industrial action is likely to keep a firm lid on any significant gains for Sterling as strike action is likely to impact December’s GDP for the UK. The wave of industrial action could shrink the economy enough for another quarterly decline, signalling a technical recession.