The GBP/EUR exchange rate was down -0.14% on Monday after the latest economic data turned worse than expected. GDP growth data was better than analysts had expected, but construction and trade were weaker. The day ahead brings German inflation and UK employment numbers.
GBP against EUR is trading at 1.1965 after a two-day rejection of the 1.2000 figure.
UK economy likely to slow after latest growth figures
Britain’s economy risks stagnating or contracting in the coming months, economists have warned.
The latest GDP growth figures showed a disappointing rise in GDP in February and highlighted a fragile economy as households grapple with a cost of living crisis.
Ruth Gregory of Capital Economics said that the economic recovery after the fall in growth caused by Omicron in December had come to a halt in February:
“The news that the economy was barely growing in February suggests that the economy had a little less momentum in the first quarter than we had previously thought and increases the risk of a contraction in GDP in the months ahead. ahead as pressure on real household incomes intensifies.”
Thomas Pugh, economist at RSM UK, predicted that growth would slow sharply until 2022:
“The 0.1% m/m rise in GDP in February suggests that growth in the first quarter should be around 1% q/q. However, the cost of living crisis and the disruption of the supply chain supply mean that growth is expected to slow sharply.
The latest figures came before the Russian invasion of Ukraine and the resulting spike in oil prices.
ING’s James Smith predicted a small contraction in the April-June quarter:
“Putting this together, we expect first-quarter GDP to hover around 1% before turning negative in the second quarter.”
The week ahead contains employment and inflation figures that will be important for the next Bank of England meeting.
The euro faces headwinds from a close French election
The euro faces headwinds from an uncomfortably tight French election race for Emanuel Macron.
While volatility has accelerated, the base case scenario remains that Macron will win, according to Julius Baer’s Mathieu Rachet.
“Furthermore, the risks to French assets if Le Pen wins have also diminished compared to 2017, as she no longer argues for a ‘Frexit’ and the likelihood of her party winning a majority in the June legislative elections is slim, which which will likely result in limited power,” Redeem wrote.
The coming week has a European Central Bank policy meeting and traders will be looking for any signs of a more hawkish strategy. However, the final minutes of the last meeting have already suggested an end to Q3 bond buying that will come before any rate hikes.
The day ahead brings a final German inflation reading and the latest UK employment figures. The preliminary inflation reading came in at 7.3% for the German economy and may not go much further. Analysts expect an increase of 50,000 jobs in January for the UK economy after falling -12,000 in December.