The GBPEUR exchange rate tumbled on Monday as traders reacted to a crisis in energy prices. The situation is so bad that some are comparing it to the 2008 Northern Rock bailout in the banking system. We said yesterday morning that the pound was vulnerable this week after recent failures above the 1.700 level.
The GBP to EUR trades at 1.1650 and will look to PMI data on Wednesday and the BoE rate meeting on Thursday.
Energy crisis threatens the pound sterling
A crunch in the energy market is driving higher UK gas imports and is now weighing on the Pound says an analyst at Deutsche Bank.
UK energy prices have been moving higher in recent weeks after a global and domestic supply squeeze, however they surged last week after a fire at an electricity import station in Kent.
The station housed the UK’s main electricity subsea cable with France and traders bet that an already tight UK gas market would be squeezed by a further drawdown in stocks as more domestic generation capacity was fired up.
National Grid said on Wednesday the fire would mean 1 GW, or half of overall capacity, would remain offline until 27th March 2022.
With European gas supply already under significant pressure the situation is threatening to evolve into a full-blown energy crisis that could hurt the economy and the British Pound.
“The UK remains a net importer of fuels, running a small surplus in oil trade and a slightly larger deficit in natural gas,” said Shreyas Gopal, analyst at Deutsche Bank.
“The UK’s reliance on imports has undoubtedly increased this year,” he added.
“This would represent a moderate widening of the UK’s current account deficit, which stands at just over 3% of GDP over the past four quarters. To be sure, our estimate likely represents an upper bound, but at the least it suggests that the gas price increase will be worth monitoring over coming weeks,” said Gopal.
Universal credit cut criticised for homelessness and human rights
More than 40 charities that support young people in care or homelessness have urged the Chancellor not to remove the Universal Credit uplift at the end of the month.
Young people will be the hardest hit by the removal of the £20-a-week increase, according to the letter, led Centrepoint and End Youth Homelessness. The increase was described as a “lifeline” and was introduced temporarily to help claimants weather the storm of the government lockdowns.
The Government plans to phase out the measure at the end of September, at the same time as the furlough scheme. The move is being opposed by six former work and pensions secretaries, charities, think tanks, teachers and MPs.
The UN poverty envoy, Olivier De Schutter, also called the move unconscionable and said it likely breached human rights. The UK economy showed strong jobs numbers last week with pre-virus levels of payrolls and vacancies at a record, which traders will hope can cushion the end of furlough.