The GBP EUR exchange rate recovered from the previous week’s sell-off with a move above the 1.1700 level. Boris Johnson has said the government will “do things” to stave of the cost-of-living pressures in the country. One of those things could be a windfall tax on the oil industry, which has been boosted by higher commodity prices.
The GBP to EUR was trading near the 1.1750 level heading into the weekend and will look to hold gains there with employment and inflation released for the UK this week.
Government considers a windfall tax on the oil industry
Boris Johnson has said he will “have a look at” imposing a windfall tax on oil and gas giants as he comes under increasing pressure to address the cost-of-living crisis.
Labour backs the move, after Shell and BP announced record profits due to the rise in oil and gas prices.
“The disadvantage with those sorts of taxes is that they deter investment in the very things that we need to see them putting them in,” Mr Johnson said.
The energy minister Greg Hands echoed that statement, saying:
“It’s very much the belief of the chancellor that a windfall tax would kill off investment. For example, in the North Sea and particularly from companies that are also using those proceeds to invest increasingly in renewables.”
“We take the view that the windfall tax would be likely to kill off investment and cost jobs, particularly in Scotland,” he added.
Spain and Italy have already moved to impose a windfall tax on energy companies in their respective countries.
The UK economy dominates data in the week ahead with the release of employment and inflation data. The pound sterling will look for an improvement on last month’s 10k new jobs, while it could get a boost if inflation is seen cooling from last month’s 7% mark.
Inflationary pressures are not a UK phenomenon
Reading the press in the UK would lead some to assume that the UK is alone in dealing with inflationary pressures.
However, inflation in Ireland was near 7% and hit a record high in Germany according to last week’s data. The annual inflation rate in Europe’s largest economy rose to 7.4% from 7.3% in March. The German statistics office said the main factor in March was higher energy prices, but there was also considerable pressure from food prices. “This is where the impact of the war in Ukraine is becoming more and more visible,” the group said.
Food prices rose 8.6% across all areas with prices for fats and oils up 27.3% due to panic-buying of vegetable oil at German supermarkets. Meat and meat products rose 11.8%, while dairy products and eggs went up 9.4% in price and fresh vegetables became 9.3% more expensive.
The European Central Bank President, Christine Lagarde, confirmed plans for a potential July rate hike to cool inflation. The ECB is likely to end its stimulus program early in the third quarter of this year, followed by a rate hike that could come just “a few weeks” later, Lagarde said.
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