Sterling on the back foot despite UK avoiding recession

By Lauren Buckner

The Pound has very slowly staged a ‘recovery’ against the Euro this week as we have seen the market move higher since the beginning of the week from rates not seen since September.  Now approaching the 1.13 interbank mark we see much more comfort around this level which has acted as a bit of pull to the Pound this year so far.

UK GDP figures released this morning show that the UK has officially avoided slipping in to recession; just. From October to December 2022 the UK economy remained stagnant, it neither grew nor contracted. Despite appearing positive news for the Pound it has had minimal impact on exchange rates this morning. Construction was the shining star for the economy during this period growing at 0.3pc but with the service sector remaining flat it suggests that the worst is yet to come for UK plc.

If an economy is not growing it means that there is less money in the system in general, less business investment and reduced job opportunities making it harder still for an economy to boom. Forecasts firmly remain for the UK economy to contract through 2023.

This negative outlook has meant that Sterling has been on the back foot this year so far as we battle the risk of recession and higher costs of living. This has understandably muted investors’ appetite in UK investment and in turn the value of the Pound.

This economic uncertainty has also fuelled a strong USD breaching 1.20 versus GBP again earlier in the week. As a safe haven currency investors will buy up the US Dollar to avoid volatile trading conditions or a poor investment. The US economy also remains buoyant in comparison to the UK.

The Dollar’s advances however has also been stabilised by a change in fortune in Europe. The Euro has gained over 13pc against the US Dollar since September last year as fuel prices begin to stabilise. EU gas prices have tumbled by over 85pc (a huge amount!) as a milder than expected winter cooled demand and reduced inflationary pressures in the bloc meaning that a recession is no longer expected in Europe! This could not be further than the UK’s current fortunes and therefore those with a need to purchase Euros need to tread carefully if taking their time to decide when to buy. Make contact with the A Place in the Sun Currency team today to discuss what we can do to help.