EUR GBP Moves Higher on Growth Prospects

The EURGBP exchange rate was higher on Thursday as the economic growth for the eurozone was lifter this year, while the UK’s latest quarterly figures were a disappointment. The pound sterling has also been weighed by the recent Article 16 worries.

The EUR to GBP rate trades at the 0.8565 level and faces resistance at the 0.8600 level.

UK growth comes in lower than expected to September

The UK economy is coming close to its pre-pandemic levels of growth, with city analysts applauding the recovery.

Official figures showed the economy growing at 1.3% between July and September. That was lower than expected and well behind the 5.5% spurt enjoyed in the second quarter as the nation bounced out of lockdown.

The  0.6% growth in September was better than forecast, giving some hope that October and November will also be strong, but that may be overly optimistic after the recent energy crisis wreaked havoc on the sector. The UK is now on track to see growth back where it was prior to the pandemic at the end of 2019.

Simon French, chief economist at Panmure Gordon, said: “It’s quite an achievement really. The Chancellor intervened to prop up the UK economy on an unprecedented scale – spending in excess of £400 billion. The result has been a very fast economic recovery. Whilst the Bank must remain vigilant on inflation — set to rise to around 5% – it is also giving the recovery in both output and jobs every chance. For many Britons that is a rather better policy mix than we saw after the Global Financial Crisis.”

The slower pace of recovery over the summer was put down to supply chain issues that have hurt retailers and other businesses including car makers.

Chancellor Rishi Sunak said:

“The economy continues to recover from Covid and thanks to schemes like furlough, the unemployment rate has fallen for eight months in a row, and we’re forecast to have the fastest growth in the G7 this year.”

European commission raises growth prospects but pressures loom

The European Commission has lifted its growth forecast for the 19 countries using the euro, stating on Thursday that the recovery has picked up pace.

However, the EC lowered its outlook for next year, warning that high energy prices and supply chain bottlenecks were an issue for businesses and households.

Estonia is heading for the second highest level of economic growth in the European Union at 9%, lagging behind only Ireland, where the economy is forecast to expand 14.6%.

However, analysts warn that the forecasts depend heavily on the path of the virus and the pace at which supply chains adjust to the rebound.

A headwind for the recovery is the high number of virus cases in Germany. The latest figures are near 50,000 daily cases despite the huge vaccination rates. Other countries in Europe are also facing the same problem and that is ahead of the severe winter weather. Countries are imposing vaccine passports but these are not slowing the spread and could add to a potential energy crisis if people are locked down in cold winter weather.

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