Homepage » News » EUR/GBP » Euro Pound Sterling (EUR/GBP) Exchange Rate Rises as UK Economy ‘Close to Stagnation’

Euro Pound Sterling (EUR/GBP) Exchange Rate Rises as UK Economy ‘Close to Stagnation’

Euro Pound (EUR/GBP) Exchange Rate Increases despite Modest Increase in UK Services Activity

On Wednesday the Euro Pound Sterling (EUR/GBP) exchange rate edged up by around 0.2%.

The pairing is currently trading at an inter-bank rate of £0.8877.

In May the UK service sector saw a modest increase in business activity.

New work rose for the first time since December 2018, and input costs saw the slowest rise for 12 months.

However, widespread reports that Brexit uncertainty remained a headwind to growth which dampened sentiment in Sterling.

Commenting on this, Chief Business Economist at IHS Markit, Chris Williamson noted:

‘Although service sector business activity gained a little momentum in May, with growth reaching a three-month high, the pace of expansion remained disappointingly muted and failed to offset a marked deterioration in manufacturing performance and a fall in output of the construction industry during the month. As a result, the PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012.’

Euro (EUR) Rises despite Spanish PMI Composite Falling to 66-Month Low

Private sector growth in the Eurozone remained subdued in May as the Eurozone composite PMI rose to a better-than-expected 51.8.

The latest index reading hit a three-month high and extended the period of continuous growth to just under six years.

However, looking at individual countries, Spain was hit the hardest, with the PMI composite falling to a 66-month low.

However, the single currency rose as disappointing data and Brexit pessimism weighed on Sterling.

Commenting on the PMI composite, Chris Williamson, Chief Business Economist at IHS Markit said:

‘Despite output at goods and service providers collectively rising at a slightly faster rate in May, the survey data are merely indicating a modest 0.2% rise in GDP in the second quarter.

‘Furthermore, there seems little prospect of any immediate improvement: new orders barely rose in May, painting one of the gloomiest pictures of demand seen over the past six years, and companies’ expectations of growth over the coming year likewise fell to one of the lowest in six years.’

Euro Pound Outlook: Will a Dovish ECB Weigh on the Euro?

Looking ahead to Thursday, the Euro (EUR) could slide against the Pound (GBP) following the release of the Eurozone’s GDP.

If growth in the bloc has not expanded as high as forecast, sentiment in the Euro could be dampened.

Later in the day it is likely the single currency could slip further following the European Central Bank’s (ECB) interest rate decision and monetary policy statement.

If the tone of the central bank is overly dovish and suggests there could be an interest rate cut in the near-future, the Euro Pound (EUR/GBP) exchange rate could slip.