Pound Euro Exchange Rate (GBP EUR) Slumps As Osborne Announces Massive Reduction In 2013 UK GDP Forecast

March 20, 2013 - Written by Ben Hughes

STORY LINK Pound Euro Exchange Rate (GBP EUR) Slumps As Osborne Announces Massive Reduction In 2013 UK GDP Forecast

Sterling has come under renewed selling pressure this afternoon, following UK Chancellor George Osborne’s announcement during his Budget Statement that the Office for Budget Responsibility has slashed its official GDP growth forecast for the British economy for 2013 from 1.2% to 0.6%. The previous prediction of an increase of 1.2% in economic activity in the UK this year was announced by the Chancellor in his Autumn statement at the end of last year.

Economic indicators coming out of the UK in the subsequent four months have not been encouraging, causing the OBR to rapidly move to reduce their forecast. Osborne maintained today that he still believes that Britain will avoid a triple dip recession, but market participants remain wholly unconvinced – the Pound to euro exchange rate (currency : GBP EUR) slumped to 1.1626 in the aftermath of his words. The pair had been trading as high as 1.1758 just before yesterday’s European equities session closed.

Today’s session had been far from positive for Sterling even before Osborne took to his feet. This morning’s UK labour market data revealed that the level of unemployment in Britain had risen by 7,000 to 2.52m in the three months to the end of January 2013. The figure gives additional ammunition to analysts who believe the UK has indeed re-entered recession in Q1 2013.

Losses for the GBP EUR exchange rate would have been of a greater magnitude on the day were it not for news overnight from Cyprus. Following widespread protests from Cypriots regarding the levy of up to 9.9% on all savings held in Cypriot bank accounts, the tiny nation state’s parliament voted to reject the proposed EU/ECB/IMF bailout late yesterday. Earlier today, Germany’s Finance Minister Wolfgang Schaeuble warned the country’s banks, which have closed their doors until tomorrow to stop a ‘run’ on their holdings, that they might never be able resume trading unless the bailout goes through. Just when the eurozone debt crisis appeared to be dying down, the EU has re-ignited investor’s deep-set fears over the region as a whole’s creditworthiness.

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