The EUR GBP exchange rate was 0.14% higher on Wednesday after the release of UK GDP figures. A gain of 0.4% in August was slightly below analysts’ expectations and confirmed the recent tapering of the strong rebound. The UK economy is still relatively strong compared to its peers, but traders are wary of bidding the pound sterling higher at this moment.
The EUR to GBP rate also saw German inflation coming in at expectations of 4.1%.
German inflation stays elevated, GDP growth cut
Germany’s economic institutes are expected to cut their joint forecast for 2021 growth of Europe’s largest economy to 2.4% from 3.7%.
Reuters cited two anonymous sources as they said supply chain bottlenecks are continuing to hit the economy.
However, the institutes, which are expected to release the growth forecast today, will also raise their forecast for next year’s GDP to 4.8% from 3.9%.
The German government, which has been forecasting growth of 3.5% for this year and 3.6% for next year, is also expected to update its own estimates this month.
Inflation also came in as expected for Europe’s largest economy at 4.1% and the ECB will come under the spotlight soon as the BoE have moved to act early on interest rates.
Meanwhile, Russian President Vladimir Putin has said that the country will support Europe in its gas price struggles.
“We are not using any weapons,” Putin told CNBC yesterday. “Even during the hardest parts of the Cold War Russia regularly has fulfilled its contractual obligations and supplies gas to Europe,” he said.
UK economy sees modest gains in August after supply chain issues
The UK economy showed modest growth in August, which was the first full month without virus restrictions and before the of September fuel problems.
The British economy has seen its strong rebound start to wane in recent months, but the economy is still outperforming its peers.
Activity grew 0.4% in August, which was below some economists’ expectations and July was revised lower by 0.1% due to the effects of the so-called ‘Pingdemic’.
“The recent broadening in shortages and the fuel crisis may mean that growth has come to a near-standstill since August,” said Paul Dales, chief UK economist, at Capital Economics.
The International Monetary Fund also sounded a warning for the global economy and the threat of inflation this week and traders are hesitant to add further upside to the pound sterling.
The UK economy is still 0.8% smaller than it was pre-pandemic and is struggling to get back to those levels.
“Key sectors of the economy are still struggling, notably retail and construction, and many sectors are being hit hard by supply chain issues,” said Jonathan Gillham, chief economist at PwC.
“High gas prices are also damaging the economy and there are still issues relating to self-isolation that are particularly affecting the parts of the economy that sell goods overseas.”
The euro versus the pound was trading back below the 0.8500 figure, close to the yearly lows.