- Pound (GBP) is flat after gains last week
- Investment banks downgrade the GDP forecast
- Euro (EUR) holds steady after German IFO climate improves
- But companies remain pessimistic
The Pound Euro (GBP/EUR) exchange rate is unchanged after gains last week. The pair rose 0.41% in the previous week, settling on Friday at €1.1890. It traded in a range between €1.1799 and €1.1900. At 11:30 UTC GBP/EUR trades 0.02% lower at €1.1889.
The pound is little changed against the euro at the start of the week amid ongoing worries about the UK’s economic growth prospects.
Investment banks are forecasting weak growth this year with Morgan Stanley suggesting that economic growth will be less than 1% in 2025. The forecast echoes that of its peer Goldman Sachs and JP Morgan which also expect a slowdown in the UK economy and signs of labour market weakness
Morgan Stanley forecasts UK GDP to be 0.9% in 2025 compared to its previous forecast of 1.3% This is significantly below the Bank of England’s forecast of 1.5% growth.
The UK economy stalled in the July to September quarter of last year and is expected to see zero growth in the last three months of 2024 owing to uncertainty surrounding the budget announced at the end of October.
Data on Friday supported the view that the UK economy remained largely stalled at the end of 2025, avoiding a recession by a narrow margin but with risks tilted to the downside.
The PMI report shows that business optimism remained weak for the year ahead, and concerns over higher staff costs pulled employment lower.
This week, the UK economic calendar is quiet, and attention will be turning to next week’s Bank of England rate decision.
The euro is unchanged as investors digest the latest German IFO business climate index. The index showed that the eurozone’s largest economy’s leading indicator was 85.1 in January, up from 84.7 in December but below 85.6 in November. Despite the unexpected improvement, companies remain pessimistic, and the German economy is clearly still struggling.
Looking ahead the main focus for the euro this week will be the ECB rate decision on Thursday where the central bank is expected to reduce interest rates by 25 basis points.
