EUR GBP Edges Higher After Uninspiring Data

The EUR GBP exchange rate was 0.20% higher on Thursday despite some uninspiring economic data from Germany. A final reading for third quarter GDP saw the quarterly reading come in at 1.7% instead of 1.8%. Consumer confidence also slipped as shoppers were slowed down by another virus wave. Small business optimism is being seen as a positive driver for UK growth.

The EUR v GBP was trading at 0.8420 and may not see much volatility into the weekend.

German data shows further hints of a slowdown before virus

German economic data released today showed that the economy was slower ahead of the latest virus restrictions.

GDP for Europe’s largest economy came in at 1.7% on the quarterly reading after expectations for 1.8%. Consumer confidence also dropped by -1.6 after 1 in the previous month.

The December reading is the lowest sentiment since June, and could weigh on retailers ahead of the Christmas shopping season.

GfK researcher Rolf Buerkl:

“There are the current restrictions, many people will now be afraid again to go shopping as they worry about getting infected. And as a lot of the Christmas markets have now been cancelled the buzz is now missing from the city centres which is bad news for high street shops.”

A potential for further restrictions could slow the holiday shopping season and dent one of the key drivers of recent growth. But inflation is another problem, according to Gfk:

“On the other hand we are experiencing price hikes and rising inflation which are currently above 4%. And these two things together are really pinching the consumer sector at the moment.”

The latest ECB monetary policy meeting minutes said the bank would “keep its options open” after the December meeting.

Small businesses tipped to drive UK growth in the months ahead

Research on small businesses has said that a rebound in London, accompanied by pay hikes across the country could lift growth.

Xero’s small business index jumped to a 19-month high last month, at 95 points, underlining how far small businesses have come since the depths of the lockdowns.

Glen Foster, director of small business and accounting partners at Xero, said: “It’s encouraging to see positive signs of small recovery, with wages and jobs moving in the right direction and beginning to reflect the resurgence of the economy.”

London’s small businesses increased their staff levels 2.5%, which was among the highest of any region. Wages for employees also moved higher by 2.7%, mainly driven by the media and telecoms sectors. The positive data highlights small businesses will help to drive growth despite the latest increases in tax.

Britain’s economic recovery has tapered off with the rest of Europe after the global supply chain frictions, staff shortages and soaring inflation.

Further data from the Confederation of British Industry (CBI) yesterday revealed a record level of UK factories are preparing to increase prices. Stock levels contracted by 16%, which is the highest plunge on record, according to the CBI.

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