Sterling rose on Tuesday to its strongest exchange rate against the Euro since the Brexit vote, as the engines of the EU’s economy continue to stutter.
The pound’s rise to £1.21 was the highest since Britain voted to leave the bloc eight years ago, as Europe’s economy continues to see tepid growth and competitiveness lagging behind the US and China.
The political paralysis that has struck both France and Germany, the two major economies vital to Europe’s prosperity, is only making it more difficult to implement plans to reverse the slump.
The French PM Michel Barnier was forced to resign last Thursday after losing a vote of confidence. President Emmanuel Macron’s next appointment for the role will lack a majority and may well face similar blockages from a hostile parliament.
Germany, the other pillar of the European economy, saw its coalition led by Social Democratic Chancellor Olaf Scholz with the Greens and pro-business Free Democrats fracture last month, as reported by AP.
It triggered an early election on Feb. 23 and talks to form a new government may drag on into April, with ECB, the bloc’s central bank, continuing to lower interest rates amid the uncertainty, announcing a futher cut of 3% on Thursday.
Meanwhile, Pound Sterling Live reports that the UK economy exceeded expectations in the first half of this year, helped by the service sector.
The boost has meant the Bank of England has been much more reticent to cut interest rates than its European counterparts.
Yael Selfin, chief economist at KPMG, told The Times that the ECB’s decision to cut interest rates, “combined with the more doveish” messaging from the central bank, underscores a change in strategy.
“Monetary policy alone will not be sufficient to remedy the eurozone’s underlying economic challenges,” she said.
“Nonetheless, the ECB will want to avoid being behind the curve given the uncertain economic outlook.
“We expect the ECB to accelerate the pace of cuts next year and see interest rates falling to 1.75 per cent by the end of 2025,” she added.
