The GBP EUR exchange rate was flat on the week but was able to recover from early week losses based on the failure of energy firms which is set to affect millions of UK consumers. The Bank of England kept rates steady at 0.1% on Thursday but warned of inflation above 4% into the second quarter of 2020. They still refused to cut stimulus measures and advise on a faster rate hike.
The GBP to EUR was trading above the 1.1700 level once again and the key event this week will be the German elections. Europe’s largest economy also leads the week in data with consumer confidence figures and inflation.
German election race tightens ahead of the vote
The German election race was tighter last week as the lead of the centre-left Social Democrats (SPD) over Chancellor Angela Merkel’s conservatives slimmed to just four points, with three days to go before the election.
The SPD’s Olaf Scholz is currently vice chancellor and finance minister in Merkel’s grand coalition, and his lead was only one point to 25%, according to the Kantar poll.
Support for the conservative alliance, whose candidate is Armin Laschet, rose by one percentage point to 22%, while the Greens slipped a point to 16% and the business-friendly Free Democrats (FDP) rooted at 11%.
Merkel has been in power since 2005 and plans to stand down after this election. The move could open a power play for Europe with Italy ready to take a stronger role alongside France and Germany in the European power structure according to reports.
Energy crisis still looms for GBP v EUR, Boris slapped down
The pound sterling could still see swings on the energy crisis as both economies suffer from the rise in wholesale gas prices. Nine firms have gone bust in the UK with the government looking at bailouts or assistance, while Italy and Spain led European intervention in the pricing markets.
Norway helped the situation by approving increased production at two North Sea gas fields. Prices in the UK soared further after a fire in the previous week at a key input terminal in Kent.
The energy regulator OFGEM has also rejected Boris Johnson’s claim that the gas problem is “short-term”, refusing to predict how long it will last.
The prime minister rejected warnings of a cost-of-living crisis this winter, insisting “spikes in gas prices” – like food supply problems, will soon end.
But Jonathan Brearley, Ofgem’s chief executive, refused to agree to that prediction, telling MPs. “It’s extremely difficult to predict the future of the gas price.”
He said there was “unprecedented changes over the last few months” – which had seen the wholesale price leap by almost 6 times over the last year – warning: “We are in unprecedented territory I’m afraid.”
But the chief executive played down fears of the UK running out of gas, saying: “You can’t rule anything out, but we have a resilient system that customers can rely on.”
The pound sterling versus the euro will look to the 1.1700 level for support once more.