What's Happening?
HSBC has projected that the Pound to Euro exchange rate will decline to 1.1365 by the end of 2025. The bank maintains a negative outlook on UK economic fundamentals, citing fiscal policy and the upcoming Autumn budget as key areas of concern. HSBC forecasts that GDP growth will be limited to 1.0% in both 2025 and 2026, which could undermine government revenue and necessitate further tax increases. The exchange rate has recently settled around 1.1575, unable to maintain levels above 1.1600.
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Why It's Important?
The forecasted decline in the Pound to Euro exchange rate could have significant implications for UK businesses and consumers, particularly those involved in import and export activities. A weaker pound may increase the cost of imported goods, potentially leading to higher inflation. Additionally, the anticipated slow GDP growth could impact government spending and public services, as reduced revenue may necessitate budget cuts or tax hikes. This economic outlook may influence investor confidence and affect the UK's financial markets.
What's Next?
As the Autumn budget approaches, policymakers will need to address the economic challenges highlighted by HSBC. Potential measures could include fiscal adjustments to stimulate growth and stabilize the currency. Businesses and investors will be closely monitoring these developments to assess their impact on the economic landscape. The government's response to these forecasts will be crucial in shaping the UK's economic trajectory over the coming years.
