EURGBP Higher with Bank of England Meeting Due

The EURGBP exchange rate was higher by 0.14% on Monday as the pound sterling looks to Thursday’s Bank of England interest rate and monetary policy meeting. The economic data is light until midweek and the pair may be driven by news headlines. The latest OECD data showed the UK had the highest growth rate in the developed world during the second quarter.

The EUR to GBP rate trades at the 0.8545 level and will see PMI data for the UK and Europe on Wednesday.

Traders will wait for Bank of England after latest data

Wednesday sees the latest flash PMI data for manufacturing and services sector business activity. These numbers have slowed slightly in recent months as the economic bounce withers in the UK and Europe.

Traders will look beyond that data and focus on the inflation and jobs numbers from last week that were both higher than expected. Goldman Sachs have already brought their interest rate hike projections forward by a year and traders will want a hawkish tone from the Bank of England.

“The recent data on the UK labour market have been stronger than expected, and indicators imply a smoother furlough unwind than we previously assumed,” said Steffan Ball, Chief UK Economist at the bank.

“Our analysis suggests that underlying wage growth is strong and inflation pressures are firming more than anticipated,” said Ball.

In their latest analysis, Goldman Sachs have moved their baseline forecast for an interest rate increase to May 2022. The bank’s previous forecast was for the first increase in the third quarter of 2023.

The Bank of England meet on Thursday and previous comments from some members of the MPC had suggested that the requirements for a rate hike had been met. That was before last week’s data improvements.

UK posts fastest second-quarter growth in developed world

The UK economy has grown at the fastest rate in the developed world in the second quarter of 2021 according to the latest figures.

The data released by the Organisation for Economic Co-operation and Development (OECD) showed a positive improvement for the economy. Britain’s economy rose by 4.8% between April and June.

In contrast, China and the US posted growth that was less than half of the UK figures, with China’s economy rising by 1.3 percent, while the US rose by 1.6 percent. The OECD data also showed that the UK had the highest growing economy in the second quarter of 2021 of all G20 countries.

The UK’s performance has been attributed to the country’s fast rollout of vaccines that saw the economy jump-started once again. The high reliance on the services sector also played into this theme with pubs and restaurants reopening.

Last week saw strong employment data in the UK with jobs at pre-virus levels and vacancies at a record high. Alongside the higher inflation data, the BoE will feel some pressure to outline their strategy for removing stimulus.

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