EUR GBP Tests Yearly Lows on Interest Rates

The EUR GBP exchange rate was 0.23% lower on Thursday as the pound sterling shrugged off recent domestic woes. Traders are reassessing their gloomy mood on this week’s data and are confident of a rate rise in the UK by year-end.

The EUR to GBP traded to a low of 0.8453, only a handful of pips away from the 2021 lows.

UK mortgage lending improves despite BoE rates warning

A war on mortgage prices has brought down the cost of monthly payments this year and could continue for another month, despite warnings of a rate hike by the Bank of England.
Industry figures said that in the third quarter of this year, mortgage lenders offered lower interest rates than the previous quarter and were accepting a larger number of applications from would-be homeowners with small deposits.

High street and online lenders also said they would increase the supply of mortgages in the three months to the end of November after an increase in the supply.

The Bank of England are expected to raise their base rate by the end of the year. Some were expecting a 0.25% rise based on comments from Michael Saunders at the bank. However, the market had previously expected 0.10% first and that may be the case.
Meanwhile, the BoE also warned of rising defaults on household and business loans.
The Bank of England (BoE) has warned of rising defaults on household and business loans by the end of November.
In its latest credit conditions survey for the third quarter, the bank said that the net percentage balance for changes in default rates decreased over the period. The poll of lenders also found that more households are forecast to default on mortgages and other loans, including credit cards, into year-end.

“The prospect of higher interest rates, the end of the furlough scheme, a cut to universal credit and rising inflation could contribute to the potential increase in default rates among consumers,” Victoria Scholar at Interactive Investor, said.

The report could explain why mortgage lenders are ramping up lending, to compensate for potential defaults.

Economic institutes slash the German economic outlook

The euro versus the pound sterling was also hit by the latest economic forecasts for Germany.
Germany’s leading economic institutes slashed their forecast for Europe s biggest economy, saying output is being held back by the global supply chain issues and lingering restrictions.
The experts cut their growth forecast for the year to 2.4% from the 3.7% they had previously forecast. However, the five institutes, raised their 2022 forecast to 4.8% from 3.9%, predicting that normal capacity would resume in the year ahead.
“The challenges of climate change and the foreseeable lower economic growth due to a shrinking labour force will reduce consumption opportunities,” said IWH Vice President Oliver Holtemoeller.
The five institutes also expect German inflation to be 2.5% in 2022 and 1.7% in 2023.
“We assume that monetary policy will be able to achieve its price stability goal in the medium term. That would be an average inflation rate for consumer prices of 2% per year,” said Holtemoeller.

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