GBP EUR Flat Despite Government Debt Pressure

GBP EUR Flat Despite Government Debt Pressure

The Pound to Euro exchange rate was flat despite the latest UK borrowing figures which showed pressure on interest payments and an overshoot of OBR forecasts. The data is another reason for the (Bank of England) BoE to get inflation in check next week. Today brings consumer confidence from the German and French economies, followed by a speech from the European Central Bank (ECB) President.

The GBP to EUR was trading at 1.1895 after the latest economic data.

UK government borrows more and IHT pushed up by house prices

The UK government borrowed more than was expected in March and has overshot the OBR’s target by almost 20%, according to figures published by the Office of National Statistics (ONS).

In March the public sector borrowed £18.1bn, for the second-highest March figures since 1993, but £8.8 billion less than March 2021. Last month, the OBR said it expected borrowing in 2021/22 to be £127.8bn, around 20% less.

The ONS said this was the third-highest financial year borrowing since records began in 1947, but less than half of the £317.6bn borrowed in the same period last year, during the pandemic.

Meanwhile, inheritance tax receipts were up to £5.5bn between April 2021 and February 2022, up £700m from the same period last year.

Alex Davies, founder of Wealth Club said: “Tax on death is not just for the very wealthy. Rising house prices, especially in the southeast and London, have pushed many homeowners over the IHT threshold, not helped by the fact that both the nil rate band and residence nil rate band have been frozen until at least April 2026. The revenue generated from inheritance tax plays an important part in the government’s spending programme.”

IMF warns on ‘severe consequences’ for Europe from war

The International Monetary Fund warned of “severe economic consequences for Europe” from the Russia-Ukraine war and slashed its economic growth forecasts.

The IMF is now forecasting growth of 3% for advanced European economies this year, down from 4% in January, and 3.2% growth in emerging European economies, down from 4.7% in January. Output losses will be larger in Russia and in Ukraine – Russia is forecast to shrink by 8.5% while war-torn Ukraine is set to decline by 35% in 2022.

Earlier this week, the IMF downgraded its global growth forecast from 4.4% to 3.6% and also cut estimates for countries.

“The war will have severe economic consequences for Europe, having struck when the recovery from the pandemic was still incomplete. Before the war, while advanced and emerging European economies had regained a large part of the 2020 GDP losses, private consumption and investment still remained far below pre-pandemic trends, the group said”

“The war has led to large increases in commodity prices and compounded supply-side disruptions, which will further fuel inflation and cut into households’ incomes and firms’ profits.”

“New risks have emerged from the war. A protracted war would increase the number of refugees fleeing to Europe, compound supply-chain bottlenecks, add pressures to inflation, and deepen output losses.”