EUR GBP Higher Despite Pressures on European Economy

The EUR GBP exchange rate was 0.40% higher on Tuesday after the latest PMI data saw an improvement for the eurozone, but the bloc is still lagging the recovery of the UK, while its countries are moving closer towards lockdown restrictions. Higher input costs for UK businesses are weighing on the outlook.

The EUR v GBP was trading at 0.8415 after the latest economic data.

PMI data improves but UK businesses see higher costs

The UK, Germany and Eurozone saw PMI flash numbers for November that were better-than-expected.

However, the increase in average costs was the fastest since IHS Markit / CIPS started tracking the data in January 1998.

Despite the higher costs, both the UK’s services and manufacturing industries registered strong growth, with PMIs for those sectors coming in at 58.6 and 58.2 for November.

“A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December,” said IHS Markit’s chief business economist Chris Williamson.

Samuel Tombs, economist at Pantheon Macroeconomics, said the strong growth figures would “reassure wavering MPC members that the economy can withstand a modest increase in interest rates.”

The eurozone also saw improved figures but with European countries increasing restrictions over the virus, the final reading could take a real hit and today’s improvement in the euro may not be withstanding.

Slovakia is the latest country to move towards lockdown and there is a risk of travel curbs in the weeks ahead. Ryanair boss Michael O’Leary said on Tuesday: “Up until last weekend, things were going great. Volumes were back running at about 100% of our pre-COVID price volumes. It has been disrupted by the Austrian lockdown and there is a renewed concern across Europe about a fourth or fifth wave.”

UK ministers bullish on freedom and pandemic ending

Boris Johnson has again reassured the country that the UK is not facing lockdowns and restrictions. Meanwhile, his former vaccines minister said the country was right to reopen in the summer.

Nadhim Zahawi, who is currently Education Secretary, had backed dropping restrictions in the summer despite heavy criticism.

He said yesterday: “Our fourstep plan meant we were able to open up the economy in the summer. Some said it was a mistake, I think it was absolutely the right thing to do.”

The Prime Minister said there would be no move to restrictions but that the winter would not be ‘plain sailing’.

“…at the moment we see nothing in the data to say that we need to move from plan A to plan B,” he said.

He added: “We can see the state of the pandemic abroad, the supply chain issues that we are facing, the pressure on energy prices that we are all facing and the skills shortages.”

Europe has moved towards further restriction in recent days with the Netherlands initiating a partial lockdown, while Austria has gone for a full lockdown with Germany said to be considering the same move.

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