The Pound Sterling may hold support amid forecasts that a slowdown in UK economic growth will again lead to robust expansion, fuelled by stronger consumer confidence.

A recent survey of business activity in Britain has revealed 60% of firms within the leisure and hospitality sector forecast an increase in revenue over the Bank Holiday weekend.

As per the Barclaycard Payments SME Barometer, confidence amongst SMEs is returning to pre-Covid crisis levels, with 40% of firms planning to recruit more staff over the coming year.

"With the recent distributive trades survey data suggesting the UK recovery narrative, driven by the consumer, remains in play we remain biased towards looking for EUR/GBP to trade lower," said Jeremy Stretch, Head of FX Strategy at CIBC Capital Markets.

The Euro has gained on the Pound over the past fortnight, with EUR/GBP hitting a high of 0.8593. However, increasing stability within the global investor environment has bolstered the Pound this week.

Sterling’s short-term volatility is being fuelled by global sentiment, yet UK economic growth and Bank of England policy expectations will determine where the Pound ends the year.

In Q1, the Pound experienced a rapid advance as markets modified their expectations for Britain’s economy due to the successful vaccine rollout and enhanced growth forecasts.

Yet Sterling’s rally steadied against the Euro and went into reverse against the Dollar over the last few weeks, with strategists stating waning economic growth forecasts are partly to blame.

Investec economists reduced their growth forecasts for the UK this week to 6.7% for 2021 and 5.2% for 2022, but said "there still appears to be plenty of momentum in activity".

"Not only do consumers have ample savings, but upbeat business sentiment may encourage firms to invest more too," stated Philip Shaw, an Investec economist.

"We have maintained our existing profile for Sterling with an end-2021 target of $1.42, from $1.37 now," Shaw added.