The eurozone economy grew 0.4% in the second quarter, according to the preliminary flash estimate published this morning by Eurostat, the European Union statistics office. That was four times the 0.1% economists had expected and a marked pick up from the first quarter, when output was flat. It was the fastest quarterly growth in a year. Measured against the same period of 2025 the economy was 1.0% larger, up from 0.5% a quarter earlier.
The strength did not come from where you might assume. Germany, the bloc's largest economy, grew just 0.2%, cooling after a spring rebound in its industrial sector and still only matching France and Italy at the same modest pace. The heavy lifting came from the south, with Spain again leading the big economies at 0.7% and Portugal close behind. A flash estimate is a first reading based on partial returns, so the figures may be revised on 14 August, but the direction is clear: growth broadened beyond the core rather than leaning on it.
For the European Central Bank, firmer growth changes the calculation. Having raised its deposit rate, the rate it pays banks on reserves and its main lever on borrowing costs, to 2.25% in June to counter a jump in inflation driven by energy costs, the bank now has less reason to reverse course quickly. Last month's cooler inflation reading had raised hopes the hike would prove a one off, but an economy running a little above trend gives policymakers room to hold rates where they are. Steadier growth and steadier rates both tend to support a currency, and the euro firmed after the release.
What it means for GBP/EUR
The pound came into the release trading around 1.1730 against the euro, just below its 2026 high near 1.1751. Sterling has been well supported all summer by the gap between the Bank of England's 3.75% base rate and the ECB's 2.25%, worth 150 basis points in the pound's favour. The euro's lift on the GDP beat nudged the pair slightly lower, but the bigger test comes this afternoon, when the Bank of England sets rates with markets expecting a hold at 3.75%. For a business paying euro suppliers, or a buyer completing on a property in Spain or France, a level this close to the year's best is the kind of moment a forward contract exists to capture, fixing today's rate for a payment due later whatever the two central banks decide next.
