Pound Euro Exchange Rate News: GBP/EUR Softens Despite Economic Growth in the UK

July 13, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Softens Despite Economic Growth in the UK

Pound (GBP) Under Pressure from Growing Recession Fears Despite Strong GDP

The Pound (GBP) is under renewed pressure today despite the surprising expansion of the UK economy in the month of May. The dark cloud of recession continues to linger, as worrying undertones to the GDP data reveal the gloomy economic outlook that is concerning investors.

GDP data printed above market forecasts and surprised the market as the economy expanded by 0.5% in the month of May, beating out an expected 0.2% decline. A surge in holiday bookings helped boost the economy as pandemic-restrictions eased and overseas holidays returned.

However, a decline was reported in consumer-facing services with retail sales slumping in the month of May. The continuing cost-of-living crisis is set to continue, with many market experts expecting a contraction in June. With the uncertainty surrounding Brexit, ongoing fuel and energy supply issues, and the rising Covid cases in China, a contraction in the second quarter could edge the UK towards a recession.

David Bharier, Head of Research at the British Chamber of Commerce, said:

‘Today's monthly GDP growth figure of 0.5% is welcome news but masks serious underlying issues of growing imbalances within the economy.

‘Worryingly, our most recent quarterly economic survey also showed that longer term business confidence measures have begun to fall.

‘The present political instability will have only exacerbated uncertainty among small firms.’

Analysts are confident that stronger GDP figures lend support to further aggressive rate hikes by the Bank of England’s (BoE) at the next policy meeting. A bold 50bps hike could boost the Pound as BoE Governor Andrew Bailey reiterated the central bank’s pledge in bringing inflation down to its 2% target by the end of the year.

Elsewhere, the race for the Tory leadership is entering its second stage as the Conservative party announced the final eight candidates as it looks to replace Boris Johnson. Until a new leader is in place, Sterling could encounter further volatility as investors digest the candidate’s various tax plans. With many fearing damage to the economy at the cost of winning the popular vote.

Euro (EUR) Finds Support after Upbeat Industrial Production

The Euro EUR) is posting modest gains as Eurozone industrial production increased more than expected for the month of May. A steady upturn in the manufacturing sector lends support to the under-pressure Euro. Industrial production rose 0.8% MoM, beating out an expected 0.3% expansion.

However, capping any further gains has been the ongoing inaction of the European Central Bank (ECB) as it continues to battle inflation and fragmentation in the Euro area. A slowdown in global economic growth and soaring inflation is fuelling risk aversion in the markets, which could weigh on the Euro once again.

GBP/EUR Exchange Rate Forecast: Lack of Data to Compound Economic Pressure?

Data remains relatively thin on the ground for the rest of the week will leave the Pound Euro exchange rate exposed to market sentiment. With economic and political pressures continuing to build, the Pound could be left exposed to multiple headwinds.

Elsewhere, fears of a recession continue to grow in the Eurozone, with energy supply fears mounting as Russia threatens to cut Europe off gas supplies. If Russia goes ahead with cutting off supplies, the Euro could plummet as governments scramble for replacement gas supplies.

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TAGS: Pound Euro Forecasts