UK growth outperforms Germany and France

Economic forecasters generally get it wrong. Occasionally they get it right and then they crow on about that for weeks, but when it comes to the UK’s performance post-COVID the naysayers and doom-mongers have been getting it wrong for three years. In data released this morning by the Office for National Statistics, it was confirmed that Britain’s economy was 1.8% larger in the second quarter of 2023 than it was at the end of 2019, the last quarter before government reactions to COVID ravaged economies around the world. In fact, Britain is growing faster than Germany and France, making it hard to make the case for returning to the EU. However, the big drag on all economies is the stubbornly high price of goods and services in the aftermath of the Russian invasion of parts of Ukraine. This data was accompanied by a healthy 9.2% annual rise in UK business investment. The market reaction to this morning’s news has been to buy sterling. The GBP/USD rate, which has been falling all the way through the month, bounced by 1.25 cents this morning to the current level of $1.2245. The GBP/EUR rate, which has recovered a little in the last 48 hours due to poor eurozone data, has maintained its position around €1.1560. We will get more data today from the US and EU, so the day isn’t over. And it is the last working day of the month and the quarter, so be ready for volatility or an unexpected nature.

Euro traders await eurozone inflation

As mentioned above, recent eurozone data has been soft and that has hampered the euro’s ability to find buyers. We will get eurozone inflation data this morning and that too is expected to be softer than the previous month. The markets are forecasting an annual 4.5% inflation figure, down from 5.2% in August and a core inflation number (stripping out the volatile elements) of 4.8%, down from 5.3% in the previous month. If traders were looking for a reason for the European Central Bank to start considering interest rate cuts, then this will contribute to that conversation. The ECB, like most central banks, has a target rate of 2.0%, so there is a long way to go before they feel like they’ve conquered inflation. However, there is a balancing act to perform between controlling inflation and crushing the economy. Right now the GBP/EUR  rate is around €1.1560 and weakness in the US dollar has allowed the EUR/USD rate to rise a cent to just below $1.06.