The GBP EUR exchange rate was slightly lower on Wednesday ahead of the Bank of England interest rate meeting. The BoE will undoubtedly stand put at historically low rates but the volatility in the GBP v EUR will come from the forecasts. The European Central Bank are also meeting today.
The GBP EUR was trading at 1.1750 as traders focus on the potential for further restrictions.
Consumer prices soar, BoE backtracks again
Consumer prices in the UK soared again to 4% with expectations for 3.7%. Ian Stewart, chief economist at Deloitte, said:
“Goods inflation is running at the highest level in 30 years, fuelled by pandemic-related dislocations between supply and demand. But price rises for services are at much lower rates, pointing to more muted domestically-generated inflation.”
“Just as happened during the UK’s last inflationary surge, in 2011, earnings lag behind inflation. Today’s bout of inflation is more likely to play out as another squeeze on incomes than a runaway wage-price spiral.”
Jack Leslie at the Resolution Foundation added:
“Fuel price inflation is at its highest level on record, going back to 1989, with prices rising 28.5% on a year earlier. And with factory gate inflation still rising, inflationary pressures will continue to build in early 2022, while pay packets continue to shrink.”
“It’s too early to say how much affect the Omicron wave will have on inflation – and the extent to which falling demand will be offset by further supply chain disruption, which could push prices in either direction.”
“But early 2022 is likely to marked by acute economic pain for some parts of the economy – notably hospitality – alongside a nationwide living standards squeeze.”
No rush for ECB on interest rate decision, Boyer says
Sylvain Boyer said there was ‘no rush’ for the ECB to make a decision on interest rates.
The analyst admitted that the ECB had complex decisions to make but they would be delayed until February or March.
The European Central Bank were behind the curve of the BoE with interest rates but that curve has flattened again with the government’s panic over the virus variant.
The Chief of the ECB said recently that it was “very unlikely to see rate hikes in 2022.”
“We stand ready in both directions,” she added. That was at the end of November, before the recent virus panic and the ECB are going to stay behind the BoE for a long time.
There is a “very high” risk the Omicron variant of covid will become dominant in Europe by next year and lead to a large number of hospital admissions and deaths, the European Union’s public health body said.
The European Centre for Disease Prevention and Control (ECDC) said in a report that the Omicron variant of concern (VOC) was likely to overtake Delta within the first two months of 2022.
The GBP v EUR has met resistance at the 1.1735 level ahead of the Bank of England announcement.