Pound Euro Exchange Rate News: GBP/EUR Softened as UK Economy Contracted for Second Month

Modified: Friday, 11 November 2022 12:05 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Softened as UK Economy Contracted for Second Month

Pound (GBP) Weakened as Economy Continues to Contract

The Pound (GBP) succumbed to downward pressures exerted by downbeat GDP growth data.

The Office for National Statistics (ONS) released data that showed the UK economy contracted as expected for the month of September. Quarterly GDP declined by 0.2%, against an expected 0.5%, but the slightly better-than-expected figure did little to quell recession fears. More concerning was the monthly figure that showed the economy contracted 0.6% versus an expected 0.4%, and a considerable drop from the previous month.

With the UK heading towards the longest recession in 100 years, ONS figures paint an increasingly bleak picture ahead of Chancellor Jeremy Hunt’s autumn statement next week. Services joined the manufacturing sector in faltering, as the former registered zero growth, as a considerable drop in consumer spending weighed heavily on the economy. Hunt said of the troubling times ahead:

‘I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.’

The market and GBP investors look towards next week’s autumn statement and the UK government’s determination to return to fiscal responsibility. However, Alpesh Paleja, Head Economist at the Confederation of British Industry, has warned against another austerity drive that could constrict growth. Paleja said:

‘A weaker growth outlook and persistently high inflation will make for some difficult decisions on economic policy. The autumn statement must learn the lessons of the 2010s.’

Euro (EUR) Strengthened on Hawkish ECB Expectations

Meanwhile, the Euro (EUR) shrugged off downbeat economic forecasts and enjoyed moderate strength against its major rivals.

German inflation figures lent some modest support to the single currency as Europe’s largest economy ticked to its highest inflation level since 1951. Germany’s headline CPI index beat out forecasts and printed at 10.4%, continually soaring food and energy prices were the main drivers.

Potentially weighing on the Euro, however, is concerning news that a Eurozone recession is already here. The Euro area is expected to fall into recession as double-digit inflation continues to keep a firm grip on the Eurozone. It its latest economic forecasts, the European Commission has forecasted the economy is shrinking in the current quarter. European Economic Commissioner Paolo Gentiloni said of the forecast:

‘We are approaching the end of a year in which Russia has cast the dark shadow of war across our continent once again.’

GBP/EUR Exchange Rate Forecast: Inflation Data to Drive the Pound?

Looking ahead to next week’s session, the Pound Euro exchange rate could see increased movement with all eyes on UK inflation and the autumn statement.

Meanwhile, several ECB speeches are planned for the rest of Friday. Vice President Luis de Guindos, Chief Economist Philip Lane, and Executive Board member Fabio Panetta are all scheduled to speak. Any further hawkish comments could lift the Euro further.

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TAGS: Pound Euro Forecasts