- Pound (GBP) is rising after 2-days of losses
- UK Government borrowing rose to £3.1 billion
- Euro (EUR) falls amid a quiet economic calendar
- Eurozone business activity data is tomorrow
The Pound Euro (GBP/EUR) exchange rate is rising after two days of losses. The pair fell -0.05% in the previous session, settling on Tuesday at €1.1712 and trading in a range between €1.1707 and €1.1744. At 15:00 UTC, GBP/EUR trades +0.27% at €1.1743.
The pound is rising after data showed the UK government borrowed more than expected in June, highlighting the challenges that chancellor Rachel Reeves faces ahead of her Autumn budget.
Public sector net borrowing, the difference between public sector income and spending, was £3.1 billion in July, £1.8 billion more than in the same month in 2023, and the highest level since 2021.
The figure was significantly higher than the £0.1 billion forecast by the Office for Budget Responsibility and the £1.5 billion forecast by economists.
Delving into the data, the additional borrowing was driven by higher-than-expected inflation and wage growth, which lifted running costs. Meanwhile, tax revenue disappointed compared to the OBR expectations
The data highlights the challenges faced by the new government and could encourage chancellor Rachel Reeves to raise taxes.
Earlier this month, Rachel Reeves highlighted a fiscal black hole of £22 billion of unfunded spending commitments, leaving the door open for further borrowing in the first budget.
There is no more high-impacting UK economic data due to be released today. Attention will be on business activity figures due tomorrow, which could shed more light on the health of the UK economy in the month that the Bank of England cut interest rates.
The euro is drifting lower owing to a lack of fresh fundamentals for investors to digest.
Data earlier in the week confirmed that eurozone inflation rose 2.6% year on year in July, up from 2.5%; however, the outlook for growth in the region was positive. Remains weak
Attention is on turning to tomorrow’s business activity data as measured by the PMI figures. Any signs of stronger-than-expected growth could help the euro recover against the pound, although it is trading at 2024 highs against the weaker USD.