Pound Euro Exchange Rate News: GBP/EUR Wavered as UK Government Debt Surged

November 22, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavered as UK Government Debt Surged

Pound (GBP) Under Pressure from Surging Debt and Slowing Economy

The Pound (GBP) struggled for demand on Tuesday in the wake of troubling government borrowing figures. Perhaps capping any further losses is October’s figure is lower than expected.

Expectations of the national debt soaring to £22bn, which would have brought the debt to heights not seen since April 2021, were met with £13.5bn. Despite falling short of predictions, the debt is still £4.4bn higher than October 2021. The energy support from the government contributed to £1.1Bn, as the monthly £400 payment is expected to continue until at least April.

However, Chancellor Jeremy Hunt has hinted that the household support could continue beyond the six-month period. Hunt, who raised taxes and cut spending to help balance the books, commented on the surging national debt and how the UK government aims to bring it down. Hunt defended the government’s energy support scheme amidst the pandemic and now the Ukraine invasion:

‘But to tackle inflation and ensure the economic stability needed for long-term growth, it is vital that we put the public finances back on a more sustainable path.

‘There is no easy path to balancing the nation’s books, but we have taken the necessary decisions to get debt falling while actively taking steps to protect jobs, public services and the most vulnerable.’

Meanwhile, further weighing on the UK, and in turn the Pound, is that the Organisation for Economic Co-operation and Development (OECD) has become the latest to slash UK growth forecasts. Predictions of the UK slipping further behind its peers as the OECD expects the UK to be the weakest G7 member next year. Combinations of high inflation and labour shortages could see the UK economy shrink by 0.4% in 2023, downwardly revised from an expected stagnation. The Guardian Economic Editor Larry Elliott commented on the forecast:

‘Although most countries have had their growth forecasts cut by the OECD since June, only Russia’s 5.6% contraction is forecast to be more severe than Britain’s. The poor performance is forecast to continue in 2024 with expansion of 0.2% – the joint weakest alongside Russia.’

Euro (EUR) Undermined by Darkening Economic Outlook

Meanwhile, the Euro (EUR) cannot seem to capitalise on Sterling’s relative weakness as economic concerns in the Eurozone continued to sap demand. The OECD also provided their downbeat assessments of the impact of a global slowdown, predicting Europe to suffer the most.

With world economic growth set to falter and slow from 3.1% this year to 2.2% before modestly recovering to 2.7% in 2024. However, with the Ukraine invasion exacerbating the energy crisis, as well as the domino effect of supply chain issues, the OECD expects Europe to be hit the hardest. Alvaro Santos Pereira, acting OECD Chief Economist says:

‘Our central scenario is not a global recession, but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries.’

GBP/EUR Exchange Rate Forecast: Eurozone PMIs to Inspire the Euro?

Looking ahead to next week’s session, the Pound Euro exchange rate could see further movement with the release of manufacturing and services PMI data. Despite expectations of continued contractions, an expected slight improvement could provide a modest lift to the Euro.

Meanwhile, PMI figures for the UK could weigh on Sterling as an expected downturn across the board will only exacerbate recession fears. Contractions in both manufacturing and services would mark the fourth consecutive fall in manufacturing PMI, and a second for services.

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TAGS: Pound Euro Forecasts