Homepage » News » EUR/GBP » UK GDP Unexpectedly Revised Down, EUR GBP Strengthens

UK GDP Unexpectedly Revised Down, EUR GBP Strengthens

London skyline at night

The Euro Pound (EUR GBP) exchange rate pushed higher this morning following a disappointing GDP estimate from the UK.

UK growth was revised down to 0.2% in the first quarter according to the latest estimate published by the Office for National Statistics (ONS). This was down from the previous estimate of 0.3% and is a major drop from the 0.7% growth recorded in the last quarter of 2016.

The drop appears to have been largely driven by a slowdown in consumer focused sectors such as retail where rising inflation and wage pressures have led to a fall in household spending, with families forced to become more frugal as personal incomes slide.

Ms Lee Hopley, chief economist at EEF, the manufacturers’ organisation said;

‘While the downward revision may have been unexpected, the reasons behind the weakness surely aren’t. Sluggish household spending growth, a consequence of the squeeze on real incomes starting to kick in, and some pull back on export growth after an impressive end to last year.’

However the Pound losses were slowed somewhat by accompanying data that shows that UK business investment rose at a greater pace than expected over the same period.

Data shows that investment in UK businesses surged from -0.9% to 0.6% at the start of the year, outpacing expectations that it would only rise to 0.2%.

The jump helped reassure investors who previously feared that Brexit uncertainty would cause investment to fall as firms hedged their bets against potential losses incurred by the UK’s split from the EU.

Meanwhile the Euro has been bolstered by suggestions that the single currency is set to make major gains in 2017.

The optimism comes as the Euro looks set be the top-performing major currency against the US Dollar (USD) in the first half of the year, with the defeat of populist parties in major elections this year and a strong uptick in recent Eurozone economic data leading to increased market sentiment over the last few months.

The single currency has now risen by more than 6% against the US Dollar so far this year, with analysts suggesting that this uptrend is likely to continue for the second half of 2017 as political risks appear to have all but vanished since the election of Emmanuel Macron in France earlier this month.

However there are still some concerns that the European Central Bank’s (ECB) long standing commitment to ultra-low interest rates and aggressive stimulus could undermine the Euro slightly, especially after ECB President, Mario Draghi said in a speech yesterday that he saw no need to deviate from the bank’s current monetary policy.

Looking ahead the EUR GBP exchange rate may cede some ground on Friday if the ECB’s Benoît Cœuré mentions the bank’s monetary policy in his latest speech, with analysts predicting that it will echo Draghi’s dovish outlook.

Meanwhile, the Pound may soften at the start of next week as thin trading volumes over the bank holiday weekend and a lull in economic data for the remainder of this week’s trading session is likely to lessen Sterling’s appeal.

Current Interbank Exchange Rates

At the time of writing the EUR GBP exchange rate was trending around 0.8659 and the GBP EUR exchange rate was trending around 1.1543.