GBP EUR Rallies as German Inflation Fails to Boost Euro

The GBP EUR exchange rate rallied above the 1.1900 level on Wednesday after GDP figures showed a surprise gain. Traders feared a recessionary number, but the UK economy showed some resilience. German inflation came in as expected and could not boost the euro. 

The GBP to EUR trades at 1.1905 after giving up some of the earlier gains. 

Pound sterling shrugs off recessionary fears

Pound sterling bulls were cheered by a better-than-expected GDP number for the UK economy. 

Despite fears of a pending recession or stagflation environment, the economy showed some resilience with a 0.5% gain in May. April’s figure was also revised to -0.2% from -0.3%. 

The NIESR think tank said of the figures: 

“With plenty of room for revisions, it looks like touch and go as to whether or not the UK economy entered recession in the second quarter.” 

Services output saw a rise of 0.4% in May after health and social work activities grew by 2.1%. There was also a “large rise in GP appointments” in May, according to the ONS, which accounted for some of the growth. International travel and goods transportation was another factor.  

The ONS saw “increased confidence in holiday booking following the end of Covid restrictions,” but there was a 0.5% drop in retail sales which may also be linked to the international departures. Construction output was up 1.5% in May to reach its highest level since monthly records began in 2010. 

The latest numbers will support the pound in the coming weeks. The new Chancellor Nadhim Zahawi talked up the latest numbers: 

“It’s always great to see the economy growing but I’m not complacent. I know people are concerned so we are continuing to support families and economic growth.” 

“We’re working alongside the Bank of England to bear down on inflation and I am confident we can create a stronger economy for everyone across the UK,” he said. 

German inflation helped by government relief package

Germany’s annual inflation rate cooled in June after temporary government aid took effect. 

“The 9-euro ticket and the fuel discount had a slight downward effect on the overall inflation rate in June,” said Georg Thiel at Destatis. 

According to Wednesday’s figures, consumer prices rose by 7.6% in June on a yearly basis, which was the number expected by economists. The introduction of a 9-euro ticket in June is only limited to three months and will mask inflation until that time. There was also a discount on fuel prices with the year-on-year increase in transport prices lower with an 8.3% jump in June, following a 16.3% increase in May. 

Destatis noted that supply-chain problems due to the Covid-19 lockdowns were a significant factor in pushing prices higher before the Ukraine tensions. 

Inflation for June was seen higher by 1.9% in Spain on a monthly basis as we get nearer to the ECB meeting for July with likely rate hike from the central bank. 

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