Pound to Euro Rate Holds Above 1.1600 Despite UK GBP Data

January 14, 2024 - Written by John Cameron

STORY LINK Pound to Euro Rate Holds Above 1.1600 Despite UK GBP Data

The Pound to Euro (GBP/EUR) exchange rate found support just above 1.1600 on Thursday and consolidated around 1.1630 on Friday.

The latest UK data has not changed the narrative for the overall outlook with the economy flirting with recession for the second half of 2023.

There are, however, expectations that the economy will perform more strongly in 2024 which will help underpin the Pound.

GBP/EUR, overall, is liable to be held in tight ranges until the major UK data releases next week. The wages and inflation data will have an important impact on Bank of England rate expectations.

Overall risk conditions will still be monitored closely in the near term, especially after the US and UK missile attacks on Houthi targets in Yemen.

The strikes are aimed at curbing attacks on Red-Sea shipping with the impact on risk conditions watched closely.

So far in European trading, equities have made gains, responding in part to a late rebound on Wall Street.

There have not been any major Euro-Zone developments over the past 24 hours, but ECB rate-cut expectations are liable to be scaled back.

UK GDP increased 0.3% for November after a 0.3% decline the previous month and compared with expectations of a 0.2% increase.

The services sector rebounded 0.4% for the month after a 0.1% decline the previous month.

Industrial production increased 0.3% after a 1.3% slide previously, but there was a further 0.2% decline in construction for the month.

On a 3-month basis, GDP declined 0.2% from the previous three months and compared with expectations of 0.1% contraction.

In the three-months to November, no sector recorded growth from the previous 3 months.

ONS chief economist Grant Fitzner commented; “The economy contracted a little over the three months to November, with widespread falls across manufacturing industries, which were partially offset by increases in public services, which saw less impact from strike action.”

He noted the bounce in November and added; “The longer-term picture remains one of an economy that has shown little growth over the last year.”

Markets and analysts will be focussing on the potential for a technical UK recession in the second half of 2023.

ONS’s Fitzner played down the overall risk; “It’s important to remember that a recession is not simply a very small negative number followed by another very small negative number. It’s a significant and sustained fall in output. We don’t expect to see that.”

According to Yael Selfin, chief economist at KPMG UK; “The economic outlook currently remains gloomy, with a technical recession still potentially on the cards in the second half of 2023, especially given the expected impact from the industrial action in December.”

She added; “even if the economy manages to avoid a recession, it is expected to remain in stagnation territory.”

Richard Carter, head of fixed interest research at Quilter Cheviot, added; “This uplift in November is just enough to bring the UK economy back to flat growth over these two months, but it leaves an awful lot of pressure on the December figures as even a slight downward turn would result in the UK entering a technical recession.”

As far as Bank of England policy is concerned, he added; “This morning’s figure shows just how precarious the situation is for the UK economy and piles yet more pressure onto the Bank of England to cut interest rates. The Bank has managed not to tip the UK into a recession to date, but it is looking increasingly likely that its luck may be coming to an end.”

Panmure Gordon’s Simon French was more positive on the outlook; “The GDP rebound in November is consistent with a basket of soft data indicators that has seen UK move from 8th place out of the nine biggest European economies at the start of 2023, to 3rd by year-end.

He added; “Not spectacular in absolute terms, but progress vs most appropriate benchmarks.”

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TAGS: Pound Euro Forecasts