Pound Euro (GBP/EUR) Exchange Rate Extends Downside amid Bleak UK Outlook
(Updated 16:15, 31/1/23) The Pound Euro (GBP/EUR) exchange rate fell sharply through Tuesday’s European session, hitting a six-day low.
The downside in the Pound (GBP) came amid multiple bleak headlines about the UK economy. The International Monetary Fund (IMF) downgraded its UK forecasts for this year, predicting a coming recession.
Meanwhile, the number of companies going bust hit a 14-year high, with insolvencies rising to levels last seen in the wake of the 2008 financial crisis. And an analysis by Bloomberg Economics argues that Brexit is costing the UK economy £100bn a year in lost output.
While these worries weighed on the Pound, the Euro (EUR) enjoyed an upside from an unexpected expansion in Eurozone GDP.
The GBP/EUR exchange rate fell by half a percentage point, sliding from €1.1395 to around €1.1332.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Falls amid Eurozone Data and UK Headlines
The Pound Euro (GBP/EUR) exchange rate fluctuated lower this morning following the latest Eurozone data and downbeat news about the UK economy.
At the time of writing, GBP/EUR is trading at around €1.1369, down more than 0.2% from an earlier high.
Euro (EUR) Fluctuates Higher amid Mixed Data
The Euro (EUR) has faced some mixed movement this morning following the latest economic data out of the Eurozone.
Early in the session, Germany’s latest retail sales revealed an unexpectedly large slump. German sales growth contracted by a whopping 5.3% in December, rather than the forecast 0.3% decline, adding to growing fears about a recession in the Eurozone’s largest economy. This downbeat data put pressure on the common currency.
However, the Eurozone’s fourth-quarter GDP growth rate surprised to the upside later in the morning. The bloc’s economy expanded by 0.1% in the last three months of 2022, rather than contracting 0.1% as economists had expected.
Euro area #GDP +0.1% in Q4 2022, +1.9% compared with Q4 2021: preliminary flash estimate from #Eurostat https://t.co/U8NTPUudEJ pic.twitter.com/xYrlTg6HQT
— EU_Eurostat (@EU_Eurostat) January 31, 2023
This upbeat data helped the single currency regain ground, pushing GBP/EUR lower.
Pound (GBP) Pressured by Downbeat Economic News
Meanwhile, the Pound (GBP) is facing headwinds today amid multiple negative headlines about the UK economy.
The Bank of England’s (BoE) consumer credit report this morning showed a sharp slowdown in December. Paired with the 1% contraction in sales last month, economists believe this points to a big drop in consumer spending. As a result, poor performance in December may have dragged fourth-quarter GDP into negative territory.
Elsewhere, new data shows that company insolvencies in England and Wales have hit highs not seen since the immediate aftermath of the 2008 financial crash.
Gareth Harris, Partner at RSM UK Restructuring Advisory, commented:
‘These Q4 insolvency numbers have confirmed that the “excess insolvencies” which have been put off by the Government Covid support packages are now in free flow. We expect these high liquidation numbers to continue for a couple more quarters before slowly tailing off as the recession softens.
‘But, the next 6 months may be the toughest for UK business since the early 1990s as almost all economic indicators paint a gloomy picture and survival will represent success for many. This will however create opportunity for those strong businesses who may be able to capitalise if they can move quickly.’
In addition, the International Monetary Fund (IMF) published its latest economic forecasts overnight. The IMF downgraded its UK forecasts by 0.9 percentage points; it now expects UK GDP to shrink by 0.6% this year – the worst GDP among all G7 economies.
Pound Euro Exchange Rate Forecast: Sterling to Continue to Slide?
Looking ahead, worries about the Russia-Ukraine crisis could cap the single currency’s gains against Sterling. The Institute for the Study of War – a US thinktank – has warned that Russia is ‘preparing for an imminent offensive’ in Ukraine. These fears could put some pressure on EUR.
Meanwhile, the gloomy headlines about the UK economy seem to keep coming. A new analysis by Bloomberg Economics argues that Brexit is costing the UK economy £100bn a year in lost output. If the news remains focused on the difficult year ahead for the UK economy, Sterling could remain under pressure.