FU: Euro to Pound Sterling (EUR/GBP) Exchange Rate Surges as UK Wage Data Disappoints
The Euro strengthened broadly against the Pound on Wednesday after Sterling was weakened by disappointing wage growth data and as the Bank of England lowered its growth forecasts for the UK economy.
Sterling declined against all 16 of its major peers after traders pared back their bets and expectations for an interest rate rise increase after the Bank of England said that it has slashed its forecasts for wage growth.
The Bank of England revised up its UK economic growth forecast for 2014 in its quarterly inflation report for August.
GDP is expected to expand from 3% to 3.5%.
Despite the rise and the BoE saying that the economy is returning to a semblance of normality the Pound was weighed upon by disappointing wage growth figures.
Office for National Statistics (ONS) data showed that in quarter to June 2014, pay excluding bonuses rose by just 0.6% on average across the UK, the slowest pace on record.
In addition, price inflation came in at 1.9%, meaning a real terms decline in wages, though the Bank of England expects this to slow in the near term.
Earlier in the year Bank of England Governor Mark Carney warned that weak wage growth would be a barrier to the prospect of an interest rate rise occurring before the end of the year.
‘To read between the lines, the message today is that rates are still destined to rise, but when that will be is still up for debate. The fickle nature of the UK economy seems to keep everyone guessing,’ said Neil Lovatt from Scottish Friendly.
The Key points from the BoE inflation report
• Growth up. The BoE raised its growth forecasts to 3.5% in 2014 and 3.0% in 2015, both up by 0.1ppts from their previous forecast. Although they cut their 2016 forecast to 2.6% from 2.8%
• Inflation up in 2014 but down in 2015 and 2016. The BoE now forecasts 1.9%, 1.7% and 1.8% inflation for 2014, 2015 and 2016, compared to 1.8%, 1.8% and 1.9% in their previous forecast.
• Unemployment down. To 5.9%, 5.6% and 5.4% in 2014, 2015 and 2016, from 6.3%, 6.0% and 5.9% in the previous forecasts.
• Pay growth cut in the near term but raised later in the forecast. Specifically, the BoE now forecasts wage growth of 1.25%, 3.25% and 4% in 2014, 2015 and 2016 from 2.5%, 3.5% and 3.75%.
• Slack now estimated at 1% of GDP, compared to 1-1.5% in the second quarter.
Euro to Pound Exchange Rate Forecast
The Euro remains under pressure against other major peers and remained at a nine-month low against the US Dollar.
Data released earlier in the session showed that industrial production across the Eurozone fell in June adding to already heightened concerns that the region’s recovery has stalled.
The Euro is likely to go back onto the retreat on Thursday as economists are widely expecting the latest Eurozone economic growth and inflation data to show weak readings.
A poor set of figures will increase the pressure on the European Central Bank (ECB) to introduce new monetary measures at its next policy meeting.