The GBP EUR exchange rate dropped on Thursday after German inflation hit a 40-year high. The latest data will put pressure on the European Central Bank (ECB) to take action on rates, but the pound is seeing support ahead of the 1.1800 lows. Barclays flashes good earnings after early-stage rate hikes.
The GBP to EUR was trading at 1.1854 and has key support at 1.1800.
German inflation hits a 40-year high in April
The latest inflation data published on Thursday showed that consumer prices in Germany in April rose 7.4% year-on-year, the fastest increase in over 40 years.
Inflation in Germany is rising despite predictions of a slowing, which is more pressure for the European Central Bank to start raising interest rates. Previous forecasts had predicted that inflation would dip from 7.3% in March to 7.2% in April however flash estimates for April instead point to a continued rise.
According to official statistics from Destatis, inflation for April in Europe’s largest economy is expected to be 7.4%. Analysts had predicted that a fall in energy prices would bring down Germany’s inflation rate, with oil prices dropping from record highs due to a demand slump from China.
According to Destatis, energy price inflation has decreased, falling from 39.5% last month to 35.3% for April, but that was offset by a rise in food inflation which rose from 6.2% to 8.5%. Services businesses are also passing on the price rises to customers.
The overall reading takes inflation in Europe’s largest economy to its highest levels since 1981 when the Iran-Iraq war produced similar inflationary shocks on oil prices.
UK banks seeing benefits from interest rate hikes
Barclays bank has said that a strong mortgage market and rising interest rates have boosted revenues for the firm as the country struggles with a cost-of-living crisis.
The bank said the “benefit of higher interest rates” along with “robust UK mortgage-lending” helped group income rise year on year. Barclays saw personal banking profits 11% in its results for the first quarter of 2022. Interest rates have been steadily increasing from the lows in recent years to now stand at 0.75% after the BoE hikes.
The Bank of England is expected to raise the interest rate in the UK to 1% at its meeting next Thursday, which would be the highest in over a decade.
For the first time since records began in 1997, the UK is spending more on imported goods with other countries than it does from the EU.
UK exports to the EU also saw a small drop, with imports from the rest of the world to the UK increasing by almost 13%, or about £28bn. That is a worrying trend when prices are rising as the cost of imports is higher?
Next week will see the latest meeting of the Bank of England policy setting group and the pressure is on for an interest rate hike to cool inflation.