The GBP EUR exchange rate was slightly higher on Thursday as the drama over Prime Minister Boris Johnson’s pandemic partying subsided. There are also hopes that the Omicron variant has peaked in the UK. However, some analysts are worried that the UK is facing a stagflation economy that caused problems in the 1970s.
The GBP to EUR was trading at 1.1967 and the GDP picture will become clearer after today’s 3-month update into November.
Hopes of Omicron variant peak in the UK
The UK reported over 109k cases of the coronavirus and 335 fatalities with coronavirus being one of the causes.
Both figures are down on the last few days with infections dropping by around 20,000 with some hoping that the peak may have passed.
Health Secretary Sajid Javid also announced that the isolation period would be reduced to five days, after an earlier reduction from seven days. Ministers are hoping that the move will reduce the staff shortages being created by positive tests.
The country’s chief medical officer, Jonathan Van Tam is leaving and Javid also paid tribute as the Johnson cabinet faces more changes.
The pound sterling was hit by the admission from the Prime Minister Boris Johnson that he had attended the garden party at the centre of an investigation.
Rishi Sunak and Dominic Raab were among ministers giving their support to the PM, but the Scottish Conservative leader Douglas Ross was among the senior ministers calling for Johnson’s resignation.
Fears of a 1970s-style stagflation economy in Britain
Talk of stagflation has been brewing in the City of London as soaring inflation meets stagnating economic growth.
UK consumer prices rose to a 5.1% level in November, which is the highest in over a decade. Prices are moving swiftly ahead of wages and that is adding to the cost-of-living crisis in the UK.
November’s CPI number was well ahead of the expected 4.7% and the Bank of England will now have to decide on the next actions for interest rates in the country.
Energy prices were a major factor in the inflationary rise and other goods such as clothing, food and tobacco have also been on the rise.
Friday brings the latest three-month GDP number for the UK into November and that will give traders more insight into the strength of the economy, ahead of the latest restrictions. Analysts expect a 0.8% quarterly figure, down from 0.9% last month.
The price pressures do not show any sign of easing as prices of goods leaving UK factories jumped by 9.1% in November, which is the highest producer price inflation in over 13 years. Worker shortages are also a problem after vacancies touched a new all-time high of almost 1.2 million.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, remarked that inflation could remain near 5% over the next few months, before a potential surge to 6% in April.
Tombs said the numbers are “uncomfortably high” for the Bank of England, with the bank already hiking rates to 0.25% last month.
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