The GBP EUR exchange rate opened the week down -023%, risking giving up key support. KPMG predicts a mild recession for the UK economy next year. The euro saw disappointing figures last week for growth, but traders are happy to give the single currency the edge just now. The G7 announced a plan to ban imports of Russian gold. However, they may have other tricks up their sleeve. The outlook for European energy this winter remains a threat.
The GBP to EUR is trading at the 1.1590 level. It needs to hold on or deeper losses are possible.
KPMG sees ‘mild’ recession for the UK economy
Consulting firm KPMG said the UK is likely to enter a mild recession next year due to the current external pressures.
Economic growth in the UK is forecast to slow down to 3.2 per cent in 2022 as the Ukraine conflict weighs on the near-term outlook. According to predictions, growth will slow further to 0.7 per cent in 2023 due to the current geopolitical problems.
“We expect growing external headwinds and weakening domestic momentum to see economic growth slow significantly over the next year, with a significant risk of a mild recession,” Yael Selfin, at KPMG UK said.
The UK economy is a services-based economy. The pandemic lockdowns and the Russian sanctions saw problems in the supply chain and pricing for food and energy. The week ahead is light on economic data. Traders will likely look at the situation in Ukraine for further catalysts in the pound sterling versus the euro.
Expect central bank interviews this week, including comments from the BoE Governor and head of the European Central Bank that could tilt the pound versus euro.
UK economy sees new low in consumer confidence
UK consumer confidence fell to another new low for the second straight month, according to data.
GfK’s Consumer Confidence index decreased by 1 point to -41 in June, which is the second successive record low. The index began in 1974. In May, it sampled 2,000 people aged 16 and over.
“With prices rising faster than wages, and the prospect of strikes and spiralling inflation causing a summer of discontent, many will be surprised that the index has not dropped further,” Joe Staton of GfK said.
Consumer mood is “currently darker than in the early stages of COVID pandemic,” adding that it surpassed the Brexit referendum and the global financial crisis in 2008. With talks of a “looming recession” it is clear that confidence will be a talking point in the months ahead.
“One thing is for sure, Britain faces a stark new economic reality and history shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough.”
UK inflation drove tighter consumer spending and lower confidence with the latest reading for prices at a 9.1% annual gain. That will continue to weigh on consumers and in raising interest rates to counter the effect, it will only reduce income further via higher mortgage payments.
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