The GBP EUR exchange rate again jumped to the 1.1900 level on Wednesday after German consumer confidence hit a new record low. It was a warning sign for a recession in Europe’s largest economy. In the UK, another rail strike went ahead, disrupting commuters.
The GBP to EUR trades at 1.11905. This level will be critical to further gains.
Germany edges towards a recession with consumer weakness
Germany’s economy lurched towards recession after consumer confidence was at a record low. The former powerhouse of Europe, with its previously untouchable export numbers, dropped towards a deficit, supply chains stretched businesses, and Russian gas supplies cut.
According to predictions from the IMF yesterday, the German economy’s growth indicates that it is the weakest among the G7 nations this year. The International Monetary Fund was not as gloomy as Credit Suisse and Deutsche Bank, which predicted a recession to last until next spring.
“Germany is Europe’s problem child in many respects. Nowhere else are supply shortages hurting the economy more. The shortage of skilled workers surged. Then, of course, there’s our extremely high dependence on Russian gas,” said Andreas Scheurle of Dekabank.
German Consumer Confidence from GfK dropped to minus 30.6 points for August, the lowest since its records began in 1991, following a July print of minus 27.7 points.
The market will now turn its attention to the latest German inflation figures on Thursday, with an expected monthly increase of 0.6%. However, that is not likely to trouble the yearly number too much.
There is no euro respite as Friday will bring German employment figures and a Q2 GDP update. Spain will also see GDP figures released. Expectations for German growth range from 0.5% higher, to a contraction of the same level, with the median number being a 0.1% gain. As the country moves towards winter, a continued downturn with energy price problems could tip the country into recession.
Another UK rail strike brings services slowing to a crawl
The UK saw a new strike from rail workers, with 40,000 staff walking off the job over pay issues.
The latest strike comes one month after the most disruptive strike in three decades, bringing the nation to a standstill. Inflation was a big part of the problem, but workers are also concerned about jobs after the pandemic lockdowns changed working habits. The work-from-home era has seen commuter levels drop, leading to reduced services.
In the UK leadership race, Rishi Sunak proposed a tax cut on fuel bills as he trails in the race.
The IFS said of his cuts:
“If it were genuinely temporary, the fiscal and environmental costs of the policy would be bearable. The biggest risk with the policy is that it would prove politically difficult to restore VAT on energy bills at the end of the 12 months.”