EUR GBP Slumps Towards Recent Lows on UK Growth

The EURGBP exchange rate was lower on Friday after the release of UK GDP figures for November. The British economy improved by 0.9% in November and has now recovered to its pre-pandemic levels. Coronavirus cases are also dropping in the UK with a 33% lower number over the last seven days. Analysts see energy prices weighing on the euro, alongside the central bank’s stubbornness on interest rates.

The EUR to GBP rate was trading at 0.8336 after seeing resistance at the 0.8360 level on the week. The recent lows were at 0.8250 in the exchange rate and that would be this week’s target with UK employment and European data.

UK growth powers sterling as economy recovers virus losses

The UK economy joins only a handful of economies to regain their pre-virus economic output levels. A 0.9% growth rate in November was better than analysts had predicted and sees the UK joining the US, France, Denmark, and Germany in recovering its losses.

The economy was expected to show a 0.4% growth rate for the month of November and that was the month before the Omicron variant spread, so it is expected to be the peak for the year.

Construction reversed a slump that has existed since May, while the manufacturing industry also saw an improvement.

Chancellor Rishi Sunak welcomed the news in a tough week for the government, saying:

“It’s amazing to see the size of the economy back to pre-pandemic levels in November – a testament to the grit and determination of the British people.

“The government is continuing to support the economy, including through grants, loans and tax reliefs.”

There was more hope for the UK economic outlet with the Omicron variant showing signs of slowing. Coronavirus positive tests were 33% lower over the last seven days in the UK and previous forecasts had expected a peak in late-January.

Energy prices still weighing on the European economic outlook

Last year’s surge in wholesale gas prices is still weighing on the European economy and will dampen the recovery.

Increased imports from the United States helped to cool prices, but they still remain elevated due to the Russia and Ukraine tensions.

The prices are expected to hit consumers in 2022 after a European Commission survey showied that households are fearful of prices and less inclined to spend. Wholesale gas prices have surged by 300% over the last year and production has been hampered at European manufacturers, while household bills are expected to rise.

Bank of America analysts forecast that household energy costs could rise 50% this year and that government aid will only offset a quarter of that figure.

“We are talking about not insignificant sums, especially for poorer households,” said Georg Zachmann at energy analysts Bruegel.

The economic calendar is busy for the GBP v EUR this week as Tuesday sees the release of ZEW sentiment surveys for the Eurozone and Germany on Tuesday, alongside the UK employment data. Wednesday brings German and UK inflation rates with the German figure expected to be 5.3%, while the UK figure is expected at 5.2% and both will impact the next central bank rate decisions.

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