Pound Euro Exchange Rate (GBP/EUR) Forecast To Fall On Dual UK Deficit Threat

March 31, 2014 - Written by Tim Boyer

STORY LINK Pound Euro Exchange Rate (GBP/EUR) Forecast To Fall On Dual UK Deficit Threat

Dual structural deficits at the heart of British economy threaten to hamper the Pound Sterling’s performance as we head into the second quarter of 2014. The UK Office of National statistics published worrying figures on Friday which revealed that Britain’s trade deficit during the final three months of 2013 was running at a higher than anticipated level of £22.4bn. The print was only slightly lower than the UK’s record current account deficit of £22.8bn from Q3 2013 and, expressed as a percentage of the national GDP, was well within sight of its all-time high of 4.6% recorded in the heady days of the late 1980s.

The Pound Sterling to Euro exchange rate is trading down -0.19% at 1.20811 GBP/EUR. The Euro to Pound Sterling exchange rate is trading up +0.19% at 0.82774 EUR/GBP.

Optimists will suggest that the massive gap between the value of exports and imports points to the recent rejuvenation of the UK economy which has resulted in higher levels of demand for expensive foreign goods amongst UK consumers. However, the glass half empty brigade will assert that the massive shortfall is an indication that the British economy remains highly imbalanced and that we simply do not produce enough products of interest to our potential trading partners. The steady strengthening of Sterling against the euro and other currencies of the UK’s major trading partners throughout last year has not helped Britain’s terms of trade. A lowering of the Pound euro exchange rate GBP/EUR over the middle part of 2014 would represent a positive for the domestic trade balance figures during the latter part of 2014.

Meanwhile, another more widely discussed deficit poses an even greater threat to the Pound. The UK National Debt has doubled to over £1tn during the past five years as domestic unemployment spiralled and individuals curbed their spending causing a dip in government revenues. Last financial year, Britain’s governmental debt rocketed to over £18,600 per man, woman and child. The UK coalition government believes that it will have entirely eradicated this debt by the end of financial year 2017/18. Any suggestion during coming months that this confident projection will not come to pass would hit Sterling hard, potentially sending the Pound US Dollar exchange rate back down into the 1.5000s GBP/USD once again.

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