- Pound (GBP) falls after GDP shrinks by 0.2%
- UK is heading for a recession
- Euro (EUR) rises after German inflation hits a record high
- ECB speaks in focus
The Pound Euro (GBP/EUR) exchange rate is falling after strong gains in the previous session. The pair rose 1.1% yesterday, settling at €1.1474 after trading in a range between €1.1345 – €1.1561. At 08:45 UTC, GBP/EUR trades -0.15% at €1.1452. The pair is set to rise 0.32% across the week.
The pound is falling after data showed that the UK economy contracted in the July to September quarter. The Q3 GDP was -0.2% quarter on quarter, after 0.2% growth in the second quarter. This was, however, better than the -0.5% forecast.
Delving further into the numbers, the GDP contracted by -0.6% in September alone as both business investment and consumer spending declined.
The outlook for the UK economy remains gloomy. With inflation still elevated in double digits and interest rates rising, the squeeze on household incomes is likely to get worse before it gets better.
The Bank of England warned that the UK will likely fall into recession, which is two consecutive quarters of contraction, in the first quarter of next year and remain in recession throughout 2023.
The euro is rising after German inflation confirmed the record 11.6% year-on-year level in October. The data shows that there is still no sign of inflation cooling in the eurozone’s largest economy. The data will pile pressure on the European Central Bank to continue raising interest rates aggressively at the December interest rate meeting.
Separately the European Commission released its economic growth forecasts and predicts that the eurozone will contract in the final three months of this year and fall into recession in the first quarter of 2023. However, economic growth is expected to return in the second quarter of 2023.
Looking ahead, there is no more high-impacting eurozone data due to be released. Attention will be on ECB officials which are due to speak. Investors will be watching for clues on the path of rate hikes for the central bank.