GBP EUR Rallies After Bank of England Rise in Interest Rates

GBP EUR Rallies After Bank of England Rise in Interest Rates

The GBP EUR exchange rate was higher by 0.60% after the Bank of England raised interest rates to their highest in 13 years, warning of inflation at 11%. The pound sterling shrugged off weakness after the EU formally announced legal proceedings to counter the Northern Ireland protocol bill.

The GBP to EUR dipped below 1.1500 but rallied 200 pips to trade above the 1.1700 level.

Bank of England hikes interest rates again

The Bank of England has raised interest rates again to 1.25% and warned that inflation will hit 11% in the coming months.

The Bank was expected to hike rates despite a weakening outlook for economic growth to cool the soaring inflation levels. A stronger showing in the UK employment figures earlier this week will have sealed the deal. Details in that report showed that real wages were falling and the BoE decided to keep pushing rates higher.

Further rate rises could push the economy near recession and hurt the housing market. The central bank is  in a tight spot, but following the lead of the US Federal Reserve which is going aggressive on its own rate hikes.

Tom Bill, head of research at Knight Frank, told The Guardian:

“The latest interest rate rise will accelerate the process of normalisation taking place in the UK housing market.”

“Unlike other parts of the economy, we don’t expect decades-old records to be broken in the property market and prices will continue to drift back down to earth after the distortions of the pandemic,” he said.

The property firm talked of an increase in sellers during May as many fear further rate hikes in the months ahead.

Brussels launches legal action against UK

The European Union has announced new legal moves against Britain in an official response to the Government’s published bill on the Northern Ireland Protocol.

The European Commission is also continuing with legal proceedings which were put on hold to focus on talks between the two sides. The latest actions will continue to put pressure on the pound sterling as threats to the Brexit agreement are still possible.

The situation will drag on with the EU giving the UK two months to respond to its proceedings. Following that, the European Court of Justice could be asked to intervene.

The European Commission’s Vice President Maros Sefcovic has said that the “door remains open for dialogue” despite legal action.

“We want to discuss these solutions with the UK government. “Given that the UK hasn’t sat down at the table with us since February, I think it’s high time to show some political will to find joint solutions.”

“The UK has stated that for us to talk, the EU must be willing to change the protocol,” he added.

Talks back in February failed to find any solution to the problem which led to the UK’s actions over the protocol and the situation will continue to be a contentious issue for both sides.

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