The GBP EUR exchange rate was slammed lower last week after the Bank of England (BoE) revised its economic growth projections lower. The BoE raised rates to 1% as many had expected but had a grim outlook for energy bills and inflation. The week ahead will hinge on European data with ZEW sentiment for Europe and Germany the feature on Tuesday.
The GBP to EUR opened the week below the 1.1700 level and has surrendered recent support at 1.1800.
Haldane’s revenge as Bank of England raises rates again
The former chief economist of the Bank of England has accused the central bank of mismanaging the UK economy over soaring inflation.
Andy Haldane, who left the Bank of England last summer, said his former employer should have acted sooner to halt inflation which is at its highest level for 40 years. Haldane left after a series of warnings of an “inflationary tiger” looming for the UK, but his outspoken claims went against the views of his colleagues.
The comments come amid warnings from the central bank that the UK is on the brink of a recession with inflation expected to top 10 per cent this year.
“Acting early would have saved the need for quite the degree of tightening that might now be needed to keep the lid on inflation,” Haldane said.
“As resurgent demand bumped up against constrained supply, it struck me as more likely than not that we’d see something the like of which we haven’t seen for several decades,” he added.
“I’m really the wrong person to ask about why they got it wrong.”
The central bank has now been forced to raise rates to 1 per cent from 0.75 per cent this week, their highest level since 2009 and the fourth consecutive rate hike since December.
The BoE’s current Chief Economist Huw Pill also spoke about the rate hike and said the UK has to accept the resulting income hit.
“What we are buying is becoming more expensive relative to what we are selling,” Pill said.
“That does imply some sort of squeeze … on the real spending power of domestic residents in the UK. How that is distributed across firms, across wage-earners, across pensioners and so forth, monetary policy does not have much to say about that.”
“Maybe the benchmark shouldn’t be that wage growth gets back to inflation growth quickly, because there is a need at some point for some parts of society to accept the reality that this real income squeeze is taking place.”
Sir Martin Sorrell warns of ‘perfect storm’ for the UK economy
Sir Martin Sorrell has warned that a perfect storm is threatening Britain over the latest BoE economic projections.
The bank warned that inflation is set to hit a 40-yr high and that a recession could swiftly follow. However, Mr Sorrell did say that “tough economic conditions often bring opportunities”.
“The central banks are trying to put the brakes on, but they are behind the curve,” he said.