The GBP EUR exchange rate rallied strongly into the end of last week after the ECB interest rate and policy meeting. The move back above the 1.1700 level capped a strong bounce from the 1.1620-50 area and the pound sterling will look to add to these gains. This week sees the UK economy posting the economic data are two busy weeks for Germany and the euro.
The GBP to EUR saw yearly highs above the 1.1800 level in recent weeks but the slowing of the economic rebound was a headwind for a further advance.
UK employment figures ahead on Tuesday
Monday may be quiet for the pound versus euro exchange rate with no economic data on the day. The pair may continue the bullish mood of last week and will await the UK employment data on Tuesday.
Unemployment in the UK economy has improved over the last few months, with a sharp drop in the claimant count since March, when it was at 7.2%. The figure has since fallen to 5.7% in July, as businesses continue to reopen.
The unemployment rate for June saw a slight decline to 4.7%, but the furlough scheme is still masking some of the larger damage. The number is forecast to fall further to 4.6% for the three months to July, while wages growth has also risen to 7.4%.
Headwinds for the UK jobs market could be the ending of the furlough scheme at the end of September and the recent increase in the National Insurance rate. The British Chambers of Commerce (BCC) said the latter would hit the wider economic recovery while Make UK, which represents the manufacturing sector, said it was “ill-timed as well as illogical”.
The CBI’s president said: “After all that business has gone through during the pandemic and the fantastic Government support that followed, now is not the time for tax increases. It’s time to stimulate investment and growth in the economy.”
UK GDP shows a slowing of the economic bounce
The BCC also said in a report last week that the UK was heading for an economic slowdown. The group said that GDP, which was 4.8% in the second quarter, would ease to 1.6% between October and December.
That was confirmed somewhat on Friday with the latest 3-month average of GDP showing a dip to 3.6% from 3.8% expected. Year-on-year growth to July was also in at 7.5% instead of 8%.
Krishan Shah, a researcher at Resolution Foundation said July’s growth stumble was a “clear sign that the recovery is not complete”, and that it needs continued support.
Gam Investments said that “The continual uptick in virus case numbers along with the “pingdemic’ leading to staff shortages were cited by the ONS as contributory factors along with the continual supply-side issues. It is now unlikely that the Bank of England’s forecast of 3% growth in the third quarter will be met.”
The UK economy will also see the release of the latest core inflation on Wednesday and retail sales on Friday.