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GBP/EUR Exchange Rate Advances as Eurozone Factory Output Slows

March 14, 2018 - Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate is trending higher today following some disappointing production figures from the Eurozone.

Euro (EUR) Pressured by Disappointing Industrial Production Figures



The Euro found itself on the back foot against the Pound and most of its other peers this morning following the release of the Eurozone’s latest industrial production figures.

According to data compiled and published by European Statistics agency, Eurostat, the Eurozone’s industrial output contracted by 1% in January, its sharpest decline in over a year.

This was a significant fall from December’s rise of 0.4% and also much worse than forecasts that suggested that output growth would only slide to -0.4%.

The contraction appeared to be mostly driven by declining energy production, and durable and intermediate goods output.

Analysts also raised concerns that this may be another indicator that the momentum in the Eurozone may be beginning to slow after the bloc enjoyed bumper growth in 2017.

Bert Colijn, Senior Economist at ING said;

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‘Although still signalling strong growth, the somewhat weaker PMI data in February begs the question whether the acceleration of production might stop before it properly started.

As backlogs of work in the manufacturing sector are still very significant though, it seems unlikely that weaker orders will impact production much before summer. If indeed weaker orders persist, this could slow down industrial output growth in the second half of the year.

A mild slowdown in the manufacturing sector would be in line with our forecast of somewhat moderating GDP growth as the year progresses.’

Pound (GBP) Suffers Following Gloomy IFS Assessment of Spring Budget



Meanwhile Sterling gains have been trimmed today after the Institute for Fiscal Studies (IFS) presented its verdict on Chancellor Philip Hammond’s Spring statement.

In the wake of the Office for Budget Responsibility’s (OBR) assessment yesterday that domestic growth was unlikely to exceed 1.5% in the next five years, Paul Johnson, director at IFS warned that ‘dismal may be the new normal’ for the UK economy.

In an event in London Johnson said;

‘What’s more, growth projections remain very subdued. At no point in the next five years does the OBR believe that annual growth will exceed 1.5%. To put an even less positive gloss on the numbers, growth in GDP per capita is forecast to be less than 1% in each of the next five years, half the pre-crisis trend.

Dismal productivity growth, dismal earnings growth and dismal economic growth are not just part of the history of the last decade, they appear to be the new normal.’

The IFS also suggested that the UK government would need to raise an additional £30bn in taxes or slash public spending over the next few years in order to meet its deficit goals.

However at the same time the IFS warned that the government may struggle to raise taxes without scaring away some of the UK’s highest earners.

Johnson indicates this could have ‘severe consequences' on the UK economy, especially if it coincides with an exodus of EU citizens following Brexit.

GBP/EUR Forecast: Figures to Confirm Fall in Eurozone Inflation?



Looking ahead the GBP/EUR exchange rate may trend higher at the tail end of this week’s session as the Eurozone publishes February’s final Consumer Price Index (CPI).

Economists forecast that Friday’s data will confirm that inflation slowed from 1.3% to 1.2% last month, likely prompting a fall in the Euro as it further dents the chances of the European Central Bank (ECB) tightening monetary policy anytime in the near future.

However a lull in domestic data may leave the Pound adrift in the second half of this week’s session as it is left vulnerable to further Brexit uncertainty, especially in the run up to the second stage of Brexit negotiations later this month.

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