Pound to Euro Exchange Rate Consolidates Close to 1.17

March 13, 2024 – Written by John Cameron


The Pound to Euro (GBP/EUR) exchange rate has found support just below 1.17 and edged above this level after the UK GDP data.

The Pound and Euro have both benefitted from robust risk conditions with the US S&P 500 index posted a fresh record high overnight while several European bourses have also posted record highs.

Apart from gains in equities, there have been no major Euro-Zone developments over the past 24 hours.

According to ING; Markets are now pricing in slightly less than three rate cuts in the UK by year-end, with a June cut around 50% priced in and an August cut fully expected. We had deemed a break below 0.8500 as premature given the short-term EUR:GBP rate differentials, and we now expect some stabilisation around 0.8550 ahead of Friday’s UK data and the BoE meeting next week. (1.1695 for GBP/EUR).

The ONS reported that UK GDP increased 0.2% for January following a 0.1% decline the previous month and was in line with consensus forecasts.

The services sector posted a 0.2% gain for the month and there was a 1.1% bounce for the construction sector, but there was a 0.2% decline in production.

Liz McKeown commented; “The economy picked up in January with strong growth in retail and wholesaling. Construction also performed well with housebuilders having a good month, having been subdued for much of the last year.”


Over the last three months as a whole the economy contracted slightly with a 0.1% decline from the previous three months.

ING commented; “A rebound in retail activity helped the UK economy bounce back in January, and the combination of falling gas prices and the anticipation of rate cuts suggests we should see an improvement in growth through 2024.”

The bank added; “With wage growth still at 6% and set to fall only gradually into the summer, real wage growth should be decent and will help support spending later this year. At the margin, recent tax cuts will also add to this story. We shouldn’t get ahead of ourselves, but we think we should see a return towards quarterly growth prints in the 0.3% area later this year.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, took a similar view; “Last year’s minor recession is already rapidly receding in the rear-view mirror as real wage growth drives improving household spending power. January’s GDP was all about retail sales.”

Markets will continue to debate the impact on Bank of England interest rates.

Ruth Gregory, deputy chief UK economist at Capital Economics commented; “with the timelier data suggesting the economy has turned a corner, it now looks as though GDP in Q1 will rise by something like 0.1pc quarter on quarter rather than contract by 0.1pc quarter on quarter as we currently forecast.”

She added; “That said, today’s release may not move the dial much for the Bank of England. A 0.1pc quarter on quarter rise in Q1 would match the Bank’s forecast and with domestic inflationary pressures fading, we think a rate cut this summer (perhaps in June) is still the most likely outcome.

According to Yael Selfin, chief economist at KPMG UK; “Although economic performance has somewhat improved, the outlook remains relatively gloomy. The weak economic backdrop coupled with an improving outlook for inflation should allow the Bank of England to begin cutting interest rates from the summer onwards, despite the tax cuts announced in last week’s Budget.

She still expects that the BoE will need to be cautious; “Nevertheless, the overall policy stance will still be restrictive with interest rates expected to remain above the neutral rate until summer 2025.”

In comments on Tuesday, Bank of England Governor Bailey stated that the question for the central bank is how long we need to remain restrictive.

He stated that monetary policy is doing its job and that inflation expectations appear to be well anchored.

Bailey also noted that concerns about second-round effects have been reduced.

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