The GBP to EUR exchange rate was flat on the week as higher inflation from the UK was slowed down by a rise in cases of the so-called Indian variant of the coronavirus. The European GDP figure for Q1 came in as expected with the continent still failing to shrug off the lockdowns. UK inflation doubled over the year to April, but the BoE insist that this is temporary.
The GBP v EUR was hovering around the 1.16 level on Friday as traders try to make up their minds about the path ahead.
Euro GDP and inflation higher, UK prices surge
European GDP in the first quarter of 2021 decreased by 0.6% in the euro area and by 0.4% in the EU, according to a flash estimate by Eurostat, the official statistics arm of the European Union. The declines followed drops in the fourth quarter of 2020 after a strong rebound in the third quarter of 2020. European inflation figures were also as expected with a print of 0.8% in the middle of the week.
The annual inflation rate in the UK more than doubled in April to 1.5% with the move being largely blamed on higher oil and gas prices seeping into household bills, which were at their highest level since the start of the pandemic.
Up 0.7% in March, the increase in the consumer prices matched expectations and the Bank of England insist that this is a temporary move.
The Bank of England Governor Andrew Bailey told the Economic Affairs Committee that inflation should “pick up” in the very near future as the economy reopens.
“We do expect that to change because there has been quite a strong shift in energy prices relative to where we were a year ago… so the judgement that the MPC has had to make is… do we think that those base effects which left on their own will be temporary, will not persist, and inflation will come back down to some point,” Bailey said.
The GBP v EUR rate was looking for further pressure from prices that could’ve seen the BoE moving its tapering of QE forward.
Indian variant talk hits the pound
Sterling was unable to capitalise on the higher inflation as Indian virus cases registered 3,000, which was a near 30% increase on the week.
The UK’s Health secretary Matt Hancock told MPs on Wednesday that surge testing and vaccine supplies were being rolled out to the affected areas of the country in an attempt to slow the pace.
The latest increase came as the government took some flak over its open borders policy. Labour said that the border has been “like a sieve” throughout the pandemic, and it is odd that travellers can be fined for leaving the country, whilst it allows direct flights to enter the country from troubled countries.
The Indian variant is said to be more transmissible than the Kent variant, but there has been no official date, which is said to be coming next week.