Euro Exchange Rate: GBP EUR Forecast Negative As Fitch Strips UK Of Its AAA Credit Rating

Modified: Monday, 22 April 2013 08:31 BST - Written by Tim Boyer

STORY LINK Euro Exchange Rate: GBP EUR Forecast Negative As Fitch Strips UK Of Its AAA Credit Rating

The weekend market shut down once again brought key developments from the UK following an announcement from one of the world’s three leading credit ratings agencies. Fitch announced late on Friday that it was set to strip Britain of its highly-prized AAA credit rating.

The news that a second major credit ratings agencies since the turn of the year had downgraded the UK’s sovereign debt status from AAA to AA+ prompted Britain’s policymakers to rush out statements aimed at soothing the nerves of investors holding the Pound. Chancellor George Osborne led the way, hastily stating that the austerity package which he has imposed since the current coalition government came to power in 2010 was ‘the right plan’. Osborne went on to affirm that Britain’s broken economy is ‘healing’ – a statement which would appear to be highly dubious given the nature of recent data releases coming out of the UK.

The news topped off a highly disappointing week for the UK, following the International Monetary Fund’s downgrading of its forecast for the level of UK economic growth during 2013 earlier in the week.

Osborne backed up his calming language with an announcement of tangible actions aimed at getting Britain’s economy moving again. The UK Chancellor is expected to announce an extension to his government’s controversial ‘Funding For Lending’ scheme, which is designed to increase the level of finance made available to small businesses by Britain’s retail banks. Critics of the scheme point out that the UK’s high street banks were lending more money to small businesses in the first six months of 2012, before the FLS programme was introduced, than in the second half of the same year, after the instigation of the scheme.

The Pound Euro exchange rate (GBP/EUR) leaked support during the final 24hrs of last week’s session to end Friday in the middle part of the 1.1600-1.1700 range. Given the weekend’s events, and the UK government’s response to these events, the latest GBP/EUR forecast sees further downside highly likely for the pair today.

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