Barclays' CEO, CS Venkatakrishnan, stated that despite the bank's strongest quarterly profit since 2011, the British economy is still not out of danger. He emphasized the need for caution in the coming months due to the incomplete cycle of rising interest rates and the current macro-economic outlook around the world, which, though better than six months ago, is still not at the level required for a "soft landing." Venkatakrishnan highlighted that while inflation is falling, growth is not yet at the desired level.
Despite the various challenges that the UK economy is currently facing, including high inflation, falling wages, low productivity, low capital investment, staff shortages, high taxes, geopolitical uncertainty, high energy prices, and a lack of long-term economic growth strategy, there are signs of hope on the horizon. For the first time in over a decade, policymakers have some space to address the fundamental issues that have been hurting growth, indicating a shift towards a more optimistic outlook.
In the fiscal year ending on 31 March, the UK's borrowing, which is the difference between spending and tax income, was estimated at £139.2bn. This figure was lower than the initial prediction of £152bn made by the Office for Budget Responsibility (OBR) during last month's budget announcement, providing some "wiggle room" for tax cuts before the next election, according to an analyst. Despite this, the Chancellor acknowledged that the government is still borrowing significant amounts, describing it as "eye-watering sums." Last year's borrowing amounted to 5.5% of the UK economy's value, the highest percentage since 2014, except for the pandemic period.
New forecasts by accountancy firm PwC indicate that despite facing high inflation for at least another year, Britain is expected to avoid a recession in the current year. PwC's updated predictions join a growing number of experts and government bodies who have abandoned their bleak forecasts of the UK's economic decline in the current year.
According to the Commerce Department, the US economy experienced a slowdown in the first quarter of the year due to businesses reducing their investments in response to higher borrowing costs. The economy grew by 1.1% on an annualized basis, which is a decrease from the 2.6% rate recorded in the previous quarter, despite robust consumer spending. Analysts are anxiously observing how the largest economy in the world manages the combination of increased interest rates and rising prices. Nonetheless, the latest gross domestic product report, which is the broadest measure of economic activity, indicated that the economy has now expanded for three consecutive quarters.
Contrary to expectations that the conflict in Ukraine would push the eurozone into a recession, the region has managed to avoid one due to a mild winter that tempered the impact of increased energy prices. According to Eurostat, the EU's statistical agency, growth in the 20 countries that use the euro as their currency was 0.1% during the first three months of 2023. However, there was significant variation in performance across member states. Germany, the largest economy in the eurozone, remained stagnant in the first quarter of 2023 after contracting by 0.5% in the last quarter of 2022. In contrast, Italy and Spain, the third and fourth-largest economies in the region, exceeded market expectations by each posting a quarterly growth of 0.5%. France experienced growth of 0.2%.
The pound has remained range bound over the past week hovering between 1.2380 and 1.2490, as it has done with the Euro moving between 1.1280 and 1.1360. EURUSD briefly moved above 1.1050 and has now settled around 1.10.
GBPUSD currently resides at 1.2461
GBPEUR currently resides at 1.1348
EURUSD currently resides at 1.0980
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