EUR/GBP Forecast: Outlook as UK Heads to a Steep Recession

Summary:
• The EUR/GBP price moved sideways as investors reacted to the latest UK economic data and Jeremy Hunt’s autumn statement.

The EUR/GBP price moved sideways as investors reacted to the latest UK economic data and Jeremy Hunt’s autumn statement. It was trading at 0.8712, where it has been in the past few days. This price is about 1.63% above the lowest level in October. 

UK data and autumn statement

The EUR to GBP exchange rate reacted mildly to the latest economic numbers. On Tuesday, data by the Office of National Statistics (ONS) showed that the labor market remained tight in the country. Most sectors have boosted their workforce in the past few months.

Additional data revealed that the country’s inflation continued surging in October. The headline CPI rose by 11.1% in October, the highest level in more than 41 years. This increase happened as the cost of food and energy prices continued surging.

The main catalyst for the EUR/GBP was Jeremy Hunt’s autumn statement that will lead to more misery in the UK. In his statement, he said that the government will reduce spending and boost taxes. For example, it will reduce the energy subsidy, which means that inflation will be much higher. 

In its assessment of the statement, the Office for Budget Responsibility (OBR) said that the budget will lead to a 7% drop in GDP, which will wipe out eight years of growth. Other parts of the statement introduced windfall taxes to all types of energy companies and increased taxes paid by both companies and individuals.

Therefore, the EUR/GBP price is contending with a period of high inflation and interest rates in the UK and a recession that will go on for a while.

EUR/GBP forecast

The four-hour chart below shows that the EUR to GBP price has been in a consolidation phase as investors assess the latest events from the UK. It is trading at 0.8725, where it has been in the past few days. This price is about 5% below the highest point in October and is also at the highest point since April 23rd. 

The Awesome Oscillator is crossing the neutral level in a bullish manner while the Relative Strength Index (RSI) has moved above the oversold level. Therefore, the EUR/GBP price will likely remain in this consolidation for a while and then have a bearish breakout in the coming days. If this happens, the pair will retest the support at 0.8400.