We saw more good news about the UK economy yesterday, as Sterling benefited from much better than expected Public Sector Net Borrowing figures. The numbers showing that Government borrowing has fallen to its lowest level since 2007.
The UK now has a budget surplus for the first time in more than 15 years, and has finally balanced the books. The news has helped the Pound recover a little after last weeks low inflation numbers. The chart below shows how GBP/EUR rates have moved over the last 3 months:
Chancellor Philip Hammond said yesterday “Thanks to the hard work of the British people, borrowing is the lowest in over a decade. Our economy is at a turning point with debt starting to fall and people’s wages rising, as we build an economy that truly works for everyone.”
This is further confirmation that the UK economy is doing well, and it’s probably the case that the Pound is rather undervalued at the moment, due to the uncertainty surround the future of EU/UK trade. In my view, Sterling should be much higher against other currencies, but is being held back by Brexit uncertainty. This is likely to continue until we get a clear idea on the future relationship between Britain and the European Union.
For this reason, many of our clients that need to convert Pounds into another currency are opting to freeze the rate now using a ‘Forward Contract’. This allows you to guarantee today’s rate for up to 2 years. It’s useful if you are buying property abroad, need to budget and want to protect against any potential drop in exchange rates.
What else could affect Pound/Euro rates in the next few days?
Tomorrow could affect GBP/EUR rates when the ECB president Mario Draghi is expected to say that the Eurozone may now be ready to end its stimulus measures. If they do, expect the Euro to strengthen and become more expensive. If they decide to continue their stimulus programme however due to a slowdown in growth in the EU, the Euro could weaken. Markets will be watching what Draghi says very closely and there is likely to be volatility in rates around lunchtime when he gives his speech.
On Friday, we’ll see the latest Preliminary UK GDP numbers, expected to show growth of +0.4%. A number higher than this could push the Pound higher, but a lower reading would cause the Pound to fall.
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