British Pound: UK resilience supports Sterling against Euro - Commerzbank

Thu Lan Nguyen at Commerzbank highlights that resilient United Kingdom (UK) Gross Domestic Product (GDP) data for August, beating expectations for a fourth month, give the Bank of England more room to raise rates and ease pressure on the Chancellor’s deficit-reduction plans. Market confidence in a workable fiscal-energy compromise has pushed EUR/GBP to year lows, though she warns that fiscal risks should not be underestimated.

Resilient UK data back sterling

"It is not only economic data from the US and the euro area that have surprised to the upside recently. The UK economy has also proved remarkably resilient in the face of the energy price shock. Monthly GDP data, this time for August, came in better than expected for the fourth consecutive month."

"This is encouraging for several reasons. For one, the economy’s resilience gives the Bank of England room to raise rates without running the risk of putting additional pressure on an already weakening economy. It also takes some pressure off the Chancellor, who remains committed to reducing the budget deficit."

"How this can be achieved while at the same time providing relief to households and businesses facing high energy costs should become clearer when the budget is presented at the end of the month."

"For now, the market appears confident that a viable middle ground can be found: EUR/GBP has recently fallen to its lowest level of the year. However, given the experience of recent years, some residual risk surrounding the UK’s fiscal plans should not be underestimated."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)