The GBP EUR exchange rate was higher on Friday as the economy was shown to have recovered to its pre-virus levels. A better-than-expected GDP number boosted sterling and will add support ahead of further data this week, which includes employment and inflation.
The GBP to EUR was trading at 1.1979 heading into the weekend and will look for a further data boost to make another attempt at the 1.2000 level.
UK back at pre-pandemic economic growth rates
The latest three-month GDP update for the UK economy showed that the economy had recovered to its pre-virus levels.
The latest data showed growth into the end of November, just before the spread of the Omicron variant and the economy grew by 0.9%, with analysts expecting only 0.4%.
The British economy is now 0.7% larger than March 2020, before the first lockdown. The UK joins the US, France, Denmark and Germany amongst the major economies to have achieved the feat.
Economists expect the month to be a peak as it was followed by the plan B restrictions and also the staff shortages caused by worker isolation. November was boosted by early Christmas shoppers, but gains were seen in all sectors. The construction sector grew by 3.5%, reversing a trend of contraction that dated back to May.
The British Chambers of Commerce said of the economy:
“Stronger growth in November is likely to be followed by a modest fall in output in December and January. While the UK economy should rebound once Plan B measures are lifted, surging inflation and persistent supply chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022”.
Credit insurers Euler Hermes said that consumers had rescued the economy from the virus.
“We expect GDP growth to hit 4.4% this year, followed by a further 2.6% increase in 2023. It’s not all plain sailing, though. Wages will go up about 3.5% above the pre-crisis average in 2022, in reaction to price rises across the economy”.
The UK has economic data this week in the form of consumer prices and employment.
Energy prices still dampen the European economic outlook
Last year’s surge in energy prices is still weighing on the European economy and will dampen the recovery.
Increased imports from the USA have helped to cool prices, but they still remain elevated due to the tensions with Russia.
The prices are also hampering consumers with a European Commission survey showing that households are less willing to spend. Wholesale gas prices have risen by around 300% over the last year.
Bank of America estimates that household energy costs could rise 50% this year and government aid will only offset a quarter of that figure.
“We are talking about not insignificant sums, especially for poorer households,” said Georg Zachmann at energy analysts Bruegel.
Tuesday will bring ZEW sentiment surveys for the Eurozone and Germany on Tuesday, alongside the UK employment data and Monday will likely support the pound sterling with rising growth and falling virus cases.