The Pound Sterling to Euro (GBP/EUR) exchange rate is forecast to weaken sharply over the coming months as political uncertainty and increased expectations that the Bank of England (BoE) will delay hiking interest rates take their toll.
The Pound Sterling to Euro (GBP/EUR) exchange rate fell to a session low of 1.3802
Sterling weakened for a second consecutive session on Wednesday, as economic data released by the Office for National Statistics (ONS) showed that UK average earnings came in below expectations.
The UK average earnings index, including bonuses, increased by 1.8% in the three months to January. The data missed forecasts for a rise to 2.2%. Wages excluding bonuses also came in below expectations after rising by 1.6% instead of the 1.8% rise expected.
A separate report showed that the number of Britons out of work fell by 102,000 to 1.86 million in the three months to January. The nation’s unemployment rate remained at 5.7%, disappointing expectations for a fall to 5.6%.
The report showed that the unemployment rate among the young (16-24 year olds) remains stubbornly high as the number out of work fell by just 12,000 to 743,000.
‘Well this is rather disappointing. The jobs market had been a consistent positive for the UK economy through the past 18 months and although jobs are still being created, the rate of expansion and the impact on wages is starting to diminish. The recovery in UK jobs is something that will be lauded repeatedly while is at the dispatch box later on but looking forward; these falls in unemployment are worth little if wages are not increasing too,’ said Jeremy Cook, chief economist at World First.
BoE Minutes Offer Little Support
The minutes of the Bank of England’s March policy meeting also put pressure on the Pound as they showed that policymakers voted unanimously to keep interest rates unchanged at 0.5%. Policy makers also voted to leave the central bank’s £375 billion asset purchase programme.
The disappointing data will make the upcoming budget interesting. Chancellor George Osborne will no doubt come under fire from his opponents in the Labour Party who accuse the Conservative led coalition government of not doing enough to improve living standards.
‘Today’s fall in overall unemployment is welcome, but working people are still £1,600 a year worse off since 2010, showing the Tory plan is failing. After five years of David Cameron the number of people paid less than a Living Wage has risen by 44%, and nearly half of all the new jobs created have been in low paid sectors. It’s five years of Tory failure on low pay,’ said Labour’s Shadow Work and Pensions Secretary Rachel Reeves.
The GBP/EUR exchange rate is expected to experience more movement as market attention turns to the US Federal Reserve policy meeting which begins later today.
