The GBP EUR exchange rate was lower last week after inflation was seen to be soaring in the Eurozone. That led to traders expecting that the European Central Bank will not be as far behind the UK on interest rates as was previously expected. The week ahead will see ZEW sentiment from Germany, alongside the latest UK GDP estimate for October.
The GBP to EUR was trading at 1.1760 ahead of the weekend.
OECD sees UK outperforming G7, Goldman Sachs expects rate hike
The Organisation for Economic Co-operation and Development said the British economy is on track for growth of 6.9% in 2021, with growth of 4.7% in 2022 and 2.1% in 2023.
That would see the UK outperforming its G7 rivals in 2021 and 2022 but the group does see risks to the recovery,
On the UK, it said: “A prolonged period of acute supply and labour shortages could slow down the recovery by forcing firms into a more permanent reduction in their operating capacity.”
It also said that household and business spending could be hampered by larger-than-expected price increases for goods and energy, while inflation could lead to an early rise in rates.
“A worsening trade relationship with the European Union could also weigh on the economic outlook in the medium term,” it added.
Goldman Sachs are one bank that are expecting a rate rise as early as December, but many traders and analysts have pulled back their expectations in the last week.
Under the investment bank’s baseline scenario, “the UK economy will hold up relatively well during the fourth wave, given high vaccine take-up and a successful booster programme.”
“As a result, we still believe that a 15 basis points BoE hike is more likely than not at the December meeting,” analysts said.
European inflation gives the ECB a headache, Germany imposes restrictions
The new German Chancellor has wasted no time in adding restrictions to the German economy after the country’s high court ruled in favour of last year’s restrictions as being constitutional.
That was a green light for Olaf Scholz and the coalition to add restrictions to the unvaccinated.
“Culture and leisure nationwide will be open only to those who have been vaccinated or recovered,” Angela Merkel said, adding that the rule would also apply to non-essential shops.
The outgoing chancellor also supports compulsory vaccinations, which parliament is due to vote on soon.
Western governments could be on a collision course with its populations if it expects the unvaccinated to change their minds after all of the time and information that has gone by.
The week will see ZEW data from Germany early in the week with a UK GDP update for October on Thursday and that could be a final decider for the Bank of England ahead of their mid-December rate hike decision.
The European Central Bank will see pressure after inflation soared to a 24-year high and that is leading to pound sterling losing some of its recent advantage.
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