GBP/EUR: Strong UK Finances Tee up Gigh-Spending Budget

The British pound is up against the euro on Friday after a pickup in manufacturing activity both in the UK and in Germany despite the negative affect of the coronavirus on supply chains, while government borrowing fell in the lead up to new Chancellor Rishi Sunak’s first UK budget next month.

GBP/EUR was higher by 34 pips (-0.28%) at 1.1975 with a daily price range of 1.193 to 1.198 as of 3pm GMT.

GBP/EUR rallied back above the 1.195 level but stalled thereafter leaving weekly loss of -0.59%.

GBP/EUR – Sterling rebounded on recovery of the UK manufacturing sector

Sterling rebounded on Friday after surveys from purchasing managers showed the fastest rise in factory activity in 10 months. The Markit manufacturing PMI rose to 51.9, up from the 50 in the previous month and confounding estimates for falling activity to 49.7. There was a small moderation in the service sector, but it remains in healthy expansion at 53.3.

Gains in the pound were perhaps limited by uncertainty about what the new Chancellor will do in relation to government borrowing figures before the March 11 budget. For Public sector net borrowing in January fell to a deficit of -£10.538 from the £3.459B surplous in December. Projections are for overall borrowing to fall below £50 billion. Yael Selfin, KPMG chief economist said in reaction to the data: “Despite that relatively good news, if the Chancellor intends to stick to the current fiscal targets, he will have relatively limited room to increase spending compared to the ambitious objectives the government has set.”

The euro

Still, the currency pair looks set to end the week lower against the euro, in what is partly a natural correction from large gains last week but also a failure to capitalise on better economic data because of concerns about EU trade.

The euro lifted off multi-year lows against the dollar and maintained weekly gains versus the pound following a shock improvement in German manufacturing. German factories saw the highest activity levels in a year at 47.8 according to surveys completed by purchasing managers conducted by Markit.

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