EUR GBP Slumps on UK Employment, Growth Headwinds

The EUR GBP exchange rate was -0.18% lower on Tuesday after the latest economic data releases. UK unemployment dropped to 4.3% for the three months to the end of September, despite the end of the furlough scheme. European GDP came in as expected but there are headwinds to the growth story, particularly from the rise in virus cases.

The EUR v GBP was trading at 0.84570 and is back near the yearly lows around the 0.8400 level.

UK employment resilient despite furlough ending

The latest figures from the ONS have shown a resilient UK jobs market despite the end of furlough.

Official data on Tuesday showed the unemployment rate fell by more than expected to 4.3% for the three months to September, which is the lowest since July 2020. Employment rose by 247,000 in the latest quarterly period, more than a predicted increase of 185,000. However, the ONS said average weekly earnings were 5.8% higher than in the same three months of 2020, the smallest annual increase since April.

The latest figures from the ONS will add fuel to rate hike expectations after a BoE policymaker was cautious on rates on Monday.

Speaking at a Resolution Foundation event on Monday, Haskel said that the economy was “firing on two cylinders” and that it’s “too early to declare success” in lifting furloughed workers back into jobs.

The latest employment numbers are being seen as a green light for an interest rate hike by some analysts.

EU growth meets expectations with virus is key headwind

The latest eurozone GDP figures matched expectations for the third quarter, but analysts have predicted a slowdown in growth.

Pantheon Macroeconomics said that economic growth, which accelerated in the third quarter, has begun a sharp slowdown. “We look for growth of just 0.8% quarter-on-quarter in Q4, which, barring any further revisions, would mean that over the year as a whole the EZ economy expanded by 5.0% this year,” said Melanie Debono, senior Europe economist.

“The risks to our forecast are squarely to the downside and include: ongoing supply constraints, particularly in the manufacturing sector; slow growth in China; the energy crunch and rising virus cases.”

Germany has seen another new record in virus cases with the three coalition parties working on new restrictions. Belgium and Austria are among the countries moving to partial lockdowns over the last few days.

GDP on a quarterly basis came in at 2.2% and the yearly figure showed growth of 3.7%, down from the 14.2% rebound figure of the previous quarter.

Boris Johnson also said that the government wanted a “negotiated solution” to the Article 16 issue but if they needed to use it, would: “do so reasonably and appropriately because we believe it is the only way left to protect the territorial integrity of our country, and meet our obligations to the people of Northern Ireland under the Belfast Agreement”.

Attention will now turn to today’s inflation figures for the UK which could spur further rate hike bets.

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