The EURGBP exchange rate was slightly higher on Tuesday, but traders are awaiting the latest PMI data for the manufacturing and services sectors today. The Bank of England will meet tomorrow and provide their latest interest rate and monetary policy outlook for the UK economy. News that Norway was increasing production at two gas fields has helped to cool fears over the energy sector.
The EUR to GBP rate trades at the 0.8585 level and will look to the data for a push to the 0.8600 resistance.
Germans head to the polls, but Merkel’s failure with China has ‘doomed’ country
German voters will head to the polls on Sunday to decide who will replace Chancellor Angela Merkel after 16 years in the role. According to the latest polls, the election appears wide-open, with SPD leader Olaf Scholz in the lead by just a few points over Merkel’s replacement Armin Laschet. But her successor will have to deal with her failure to protect Germany’s car industry from Chinese competition, it has been suggested.
Dr Alim Baluch, from the University of Bath, has said that Germany’s economic strength may have just a couple of years more of life. Speaking to the Express, the German political analyst said: “Germany might be strong for a couple of years, but in the long run the German economy is doomed, regardless of who will be Chancellor.”
“In the long run China will take over the car industry, Germany did not play very well when it comes to electric cars. So, Germany is the number one in the world when it comes to combustion engines. But with regards to more hybrid motors and electric cars, 3D printed car parts, that is all China really is prepared to take over.”
Dr Baluch said: “Germany used to laugh at Chinese cars and now you get these really high-quality products.”
The German economy has underperformed in the last year due to supply chain issues and inflation hurting production, alongside government lockdowns.
UK government spending falls less than expected
British government borrowing fell by less than expected in August, according to the latest government figures on Tuesday, highlighting the ongoing coronavirus splurge. Debt interest payments were also higher due to inflation in recent months.
Public sector net borrowing fell to £20.5 billion in August, down 21% from a year earlier, but still well above economists’ £15.6 billion forecast in a Reuters poll.
A big drop in furlough payments and similar support for the self-employed was the biggest cause of the fall in spending as the economy reopened and hiring restarted.
“We are determined to get our public finances back on track – that’s why we have set out the focused and responsible steps we are taking to keep debt under control,” Sunak said on Tuesday.
Analysts expect Britain’s tax burden to rise to a record high when the latest tax rises take effect.