- Pound (GBP) is rising despite weak GDP growth
- Shop price inflation rose to 1.2% MoM in March
- Euro (EUR) is falls after inflation rises to 2.5% a 14-month high
- This was below forecasts of 2.7%
The Pound-Euro (GBP/EUR) exchange rate is rising after two days of losses. The pair fell 0.16% in the previous session, settling on Monday at €1.1502. The pair traded between €1.1496 and €1.1539. At 12:30 UTC on Tuesday, GBP/EUR trades +0.09% at €1.1512.
The pound is rising despite data showing that the UK economy barely expanded at the end of 2025 and as UK shop price inflation edged higher.
Data from the Office for National Statistics showed that the UK economy grew by just 0.1% in the final three months of 2025, while growth in the third quarter was also confirmed at 0.1%.
The figures underline that the UK economy was already stagnating even before the Iran conflict began.
Last week, the OECD cut its forecast for UK growth this year to 0.7% from 1.2% previously, marking one of the largest downgrades among major economies.
Separately, data from the British Retail Consortium showed that UK shop price inflation rose to 1.2% in the 12 months to March, up from 1.1% in February, although still below the three-month average of 1.3%.
This suggests that higher costs linked to the conflict in the Middle East are beginning to feed through supply chains, although the impact remains relatively early and contained for now.
The euro is falling after data showed that eurozone inflation recorded its sharpest rise since 2022, although the increase was still slightly less than expected.
Consumer prices rose 2.5% year-on-year in March, up from 1.9% in February and marking the highest reading since January 2025. However, this came in below the 2.7% forecast.
More importantly for the ECB, core inflation — which excludes more volatile items such as food and energy — unexpectedly slowed to 2.3%, while closely watched services inflation also eased.
That softer underlying inflation picture may offer some reassurance to the ECB, even as headline inflation rises sharply on the back of energy costs.
Even so, markets still expect the ECB to raise interest rates two to three times this year, with the first move potentially coming as soon as next month.
At the same time, governments and central banks across the region are also lowering their growth forecasts as firms prepare for weaker demand and a more challenging macro backdrop.
