The GBP EUR exchange rate will look to build on last week’s gains, but it may have to wait for the Bank of England meeting on Thursday. Analysts anticipate a hike of 25 and 50bps, but the bank may go for the former as inflation nears its peak expectation. There will also be fears that going too fast will hinder economic growth. German retail sales and final PMI numbers will be the day’s economic data releases.
The GBP to EUR opens the week trading at the 1.1907 level with some key levels ahead at 1.2040 and 1.2188.
Surprise economic growth delays European inflation fears
Europe’s economy delivered some surprise growth last month, delaying fears of an imminent recession in the bloc.
According to the EU statistics office, the European Union saw economic growth rise at 4% last quarter year-on-year and 0.6% every month. However, Europe’s largest economy, Germany, stagnated in the second quarter.
The data helped slow the pound sterling’s gains, but it may only be a temporary boost for the euro as inflation is still hot at 8.9%. The ECB will have to catch up with the BoE at further hikes.
The European data came after the US economy was in a technical recession, with a second-straight quarter of negative growth. The European economy is also likely heading that way as Russian gas supplies slowed to 20%. There are fears of being cut off ahead of the winter.
A Bank of America survey last week found that 86% of European fund managers expect a recession over the next year, up from 54% in June.
UK businesses face ‘iceberg’ of rates next year, FT says
The Financial Times reported that England’s firms would navigate dangerous waters next year as business rates rise by up to £3bn due to surging inflation.
Industry groups warned that businesses that gain from a pending revaluation could erode any benefits, while other companies will see losses deepen.
The annual uplift was postponed for two years to help companies out in the pandemic, but inflation is soaring, leading to significant hikes in business rates next year.
Louise Hellem, director at the CBI, urged the next UK leader to take action as there isn’t a moment to spare. If critical steps are not taken, firms face a hike in their bills in spring 2023 of approximately 10 per cent from inflation alone. She likened the situation to an “iceberg”, threatening firms already shouldering the burden of post-pandemic rising energy costs.
For the UK, it adds to the headwinds for economic growth, although the IMF said last week that the country would narrowly avoid a recession. The group predicted that the UK would be among the weakest in the G7.
The pound sterling almost touched the 1.2000 level. Economic data will add some volatility to the pair, but all eyes are on the BoE policy meeting on Thursday.
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