EUR GBP Slumps as UK GDP Tops Earlier Forecast

The EUR GBP exchange rate was lower by 0.52% on Thursday after the UK economy saw its second quarter GDP result come in higher than initially forecast. That puts the British economy 3.3% lower than the pre-pandemic level. German unemployment also improved but the unemployment rate stayed stuck at 5.5%. Today also marks the end of the government’s costly furlough scheme.

The EUR to GBP rate trades back below the 0.8600 level and awaits European core inflation today.

German unemployment lower, inflation hits a three-decade high

German’s unemployment dropped again in September, according to official figures on Thursday, hinting that the recent supply chain problems affecting manufacturing firms are not hampering hiring in Europe’s largest economy.

The Labour Office reported that the number of people out of work had fallen by 30,000 to 2.5 million after a Reuters poll had predicted a more modest fall of 33,000.

However, the jobless rate in the country remains remained unchanged at the 5.5% level.

“The labour market continues with its positive development,” said Daniel Terzenbach of the Federal Labour Agency. “Unemployment and underemployment are both falling significantly.”

There was further pressure for the economy in pricing data, with German consumer prices rising at the fastest pace in nearly three decades. Supply chain bottlenecks and a series of temporary pressures are still affecting the economy’s pandemic recovery.

Inflation jumped to 4.1% in September, according to the Federal Statistics Office. Energy alone was 14% higher than the same period last year, when government lockdowns curbed demand and prices.

Europe’s largest economies are all struggling with higher prices following the end of lockdowns this summer. France, Italy and Spain were among those with inflation rates higher than the 2% target set by the European Central Bank.

UK economic rebound stronger, furlough ends

The UK economic rebound was faster than initially forecast in the second quarter as spending surged with the lifting of lockdowns, according to official figures.

The ONS said that GDP was now 3.3% below the levels of Q4 2019 before the pandemic struck, which was better than the 4.4% previously estimated.

The largest driver of the upward GDP revision was consumer spending, where it added four percentage points of the 5.5% increase as restrictions were eased in the country.

Today will also mark the end of the furlough scheme which provided a safety net to many in the country.

After 18 months, tens of billions of pounds spent and millions of recipients, the government’s flagship pandemic scheme will finally end. The £20 per week temporary uplift to Universal Credit will also be withdrawn, while a VAT tax cut for the hospitality and tourism industry and a stamp duty relief tax cut will also be over.

Pound sterling traders will welcome the end of the expensive scheme and hope that the UK’s debt can stabilize as the country heads towards winter with a potential threat of higher virus cases.

The post EUR GBP Slumps as UK GDP Tops Earlier Forecast appeared first on Euro Rate Forecast.