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GBP/EUR Exchange Rate Subdued as UK Construction Sector Suffers Startling Contraction

GBP/EUR Exchange Rate Muted on Gloomy UK PMI Figures 

The Pound to Euro (GBP/EUR) exchange rate is on the back foot this morning as the UK’s latest construction PMI made for particularly grim reading. 

At the time of writing the GBP/EUR exchange rate is trading at around €1.1467, virtually unchanged from today’s opening levels. 

Pound (GBP) Undermined by Construction Sector Collapse 

The Pound (GBP) is struggling to find support this morning as markets respond to the UK’s latest construction PMI. 

According to data published by IHS Markit, the UK’s construction sector suffered a dramatic collapse in activity last month, with the index plummeted from 39.3 to an all-time low of 8.2. 

This of course has been driven by the coronavirus crisis, as building sites where shuttered as pack of the UK’s lockdown. 

Tim Moore, Economics Director at IHS Markit, comments: 

‘The rapid plunge in UK construction output during April stands out even in a month of record low PMI data for the manufacturing and service sectors. Widespread site closures and business shutdowns across the supply chain meant that vast swathes of the construction sector halted all activity in response to the COVID-19 pandemic.’ 

Alongside sharp falls in the UK’s manufacturing and construction sector, today’s data signals an extreme poor sharp to economic growth the second quarter. 

Euro (EUR) Dented by Gloomy Germany Industrial Data 

Meanwhile, the Euro (EUR) is also on the defensive this morning, following the publication of Germany’s latest industrial data. 

Germany’s federal statistics agency, Destatis reports factory orders plummeted by 15.6% in March tumbling from a 1.2% decline in February and much worse than the 10% contraction forecast by economists. 

This was also the worst reading on record and adds to concerns that Germany is set for a startling contraction of growth in 2020. 

Carsten Brzeski Chief Economist at ING Germany writes:  

‘In case you want to drop some of the extra Corona kilos you gained over the last weeks, you only have a look at German macro data. It will definitely spoil your appetite. 

‘New orders data dropped by 15.6% QoQ, from -1.2% QoQ in February. On the year, new orders were down by 16%. Needless to say that if the current pace continues, it would do much more than spoil the breakfast appetite.’ 

GBP/EUR Forecast: BoE Rate Forecasts in Spotlight 

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may face some additional pressure on Thursday as the Bank of England (BoE) delivers its latest rate decision. 

The BoE is widely expected to leave its monetary policy unchanged this month, having previously slashed interest rates to a new record low of 0.1% in March. 

Instead the focus for GBP investors will be on the BoE’s latest forecasts, with Sterling potentially retreating as the bank looks set to talk down the idea of a ‘V-shaped’ recovery, while also warning that the UK economy stands to contract as much as 10-15% ins response to the coronavirus crisis. 

At the same time, the Euro is also likely to face some headwinds tomorrow morning with the publication of Germany’s industrial production figures. Will Germany’s factory sector have suffered a record drop in output in March?