EUR/GBP remains on backfoot near 0.8550 as UK’s economic outlook improves

• EUR/GBP remains subdued, slightly below 0.8550, as the UK seems out of recession.
• BoE Dhingra earns downside risks of holding interest rates elevated.
• Eurozone’s economic outlook remains weak due to poor economic activities in Germany and France.

The EUR/GBP pair remains subdued at around 0.8550 in the London session on Friday. The asset is under pressure as the economic outlook of the United Kingdom’s economy improves due to imminent hopes that the Bank of England (BoE) will pivot to cutting interest rates.

On Thursday, the S&P Global/CIPS reported that business optimism improved due to a robust order book. The agency commented that the economy is projected to grow by 0.2%-0.3% in the first quarter of 2024, easing fears of a technical recession observed in the second half of 2023. Investors should note that the economy is considered in a technical recession when it records a de-growth for two straight quarters.

Meanwhile, BoE policymakers are still worried about downside risks to the UK economy due to delaying rate cuts. BoE policymaker Swati Dhingra, who voted for a rate cut in the last policy meeting, said a delayed decision on rate cuts comes at a cost of living standards.

On the Eurozone front, factory activities in the German and French economies remain a significant concern while the rest of the shared continent shows growth. Deepening Red Sea tensions continue to impact business optimism, leading to the requirement of early rate cuts by the European Central Bank (ECB).

However, ECB policymaker and Bundesbank Chief Joachim Nagel said on Friday that it is “too early to cut rates even if a move appears tempting to some.” Nagel added that the period of rapid inflation drops over, and setbacks are anticipated.