EUR GBP Heads for Yearly Lows on Rate Bets

The EUR GBP exchange rate was lower again to start the week as traders factored in a faster rate hike for the UK economy. Money market bets and BoE comments were the driver for the pound sterling versus the euro. Tomorrow will see UK employment data for the most recent period.

The EUR to GBP rate is trading at 0.8474 with the yearly lows only around 30 pips away.

Bank of England’s Saunders warns of faster rate hikes

Bank of England policymaker Michael Saunders has told markets to get ready for “significantly earlier” interest rate increases as inflation pressure mounts in the British economy.

“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time,” Saunders said.

“But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”

The bank’s Governor Andrew Bailey also added to the hawkish tone over the weekend, saying that inflation is likely to head higher, and that the Bank faces a “very delicate and challenging job” with the economy in the longer -term.

Tomorrow will see the latest UK employment figures with markets expecting an additional 243k jobs added to the economy during the country’s reopening. Job vacancies were also at record highs last time out and traders will keep an eye on that after the ending of the furlough scheme.

UK consumer shows signs of flagging in PwC release

PwC’s latest consumer confidence release saw rising inflation and concerns over supply chains dragging on optimism last month.

Sentiment fell across almost every age category, region, and demographic, PwC said, highlighting that people are beginning to feel uneasy about their finances.

Lisa Hooker, consumer markets lead at the firm warned that the next few weeks will be “make or break”:

The inflationary factors that have triggered the decline in sentiment are unlikely to ease in the short term, particularly for grocery, utilities and petrol. Combined with the current problems facing those industries in relation to supply, we’re beginning to see it affecting consumers’ day-to-day lives and, in turn, sentiment and demand.

“For both retail and leisure sectors, the timing couldn’t be worse. After the disappointment of last year, retailers and hospitality operators desperately need a strong run up to Christmas. Even without lockdowns, they will need to convince consumers to part with savings to have any hope of recovering to pre-pandemic levels.

The UK’s supply chain crisis is hitting businesses and consumer confidence, as worries over inflation, the energy crisis and HGV driver shortages mount.

Output growth for UK businesses was shown to have slowed for the fifth month running in September, hitting its lowest levels since March, according to accountancy and business advisory firm BDO LLP.

“Ultimately, this could mean consumers end up paying more for less this winter. Long-term planning for a post-pandemic and post-Brexit economy is crucial, but the significant challenges at their door make it increasingly difficult to focus beyond these short-term issues,” they said.

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