EURGBP Tests April 2020 Lows as Inflation Heats Up

The EURGBP exchange rate is now testing the lows of April 2020 at 0.8685 after the release of inflation figures saw prices increase in the UK. The numbers showed a slight increase of 0.1% above analysts’ expectations but they signify an underlying strength in prices ahead of the lifting of lockdown restrictions.

EURGBP is trading lower by -0.20% and the rest of the week could see the pound gain significant ground.

Inflation Heats up Ahead of Reopening

Inflation was higher in the UK last month as manufacturers lifted their prices, according to the latest survey by the ONS.

Factory gate prices rose by 0.4% in January, up from 0.2% in December 2020 and factories reported that their import costs rose, due to higher prices for materials and fuels.

Clothing and footwear prices also saw a sharp drop of 4.8% last month due to the winter discounting season.

Despite the slump in clothing prices, the UK inflation rate was 0.7% for the month, compared to analysts’ expectations for 0.6% and the numbers highlight that prices are still heating up despite the lockdown. If the Prime Minister opens up the economy in March, then this could start to become a talking point for the Bank of England in the months ahead.

Citigroup Urges Sunak to ‘go big’ in Budget

UK Chancellor Rishi Sunak has been urged to “go big” on spending to support a post-lockdown recovery in the country.

The comments came from Citgroup economist Ben Nabbaro, who also said the measures should be “better targeted” than the ones pushed by President Biden. He also warned that years of deficits meant that the Treasury has less room than the US.

“We have the capacity to go big for sure, but at the same time, it’s important that we do keep a medium-term anchor on the public finances,” Nabarro said.

Sunak will deliver a budget on the 4th of March and it could come with the tailwind of the UK’s exit from its third full lockdown. There are also conflicting calls on tax increases for the economy with the Institute for Fiscal Studies seeing a need for a £60bn tax increase over time.

Two former Tory finance ministers also said Sunak should raise taxes, but other businesses groups have urged him to avoid moving too fast. Norman Lamont and Ken Clarke said that the chancellor should drop the government’s “triple lock” guarantee that increases state pensions each year. Clarke claimed that the election manifesto “was not written at a time when anybody contemplated such an extraordinary historic event as this grave Covid crisis. You can’t be bound by that document.”

The EURGBP pair could see lower prices if the market moves below the current levels, with the 2020 lows nearer 0.8300 as the target. Get in touch to discuss these factors in further detail ahead of your EURGBP exchange, to see how the rate is likely to be impacted.

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