- Pound (GBP) is falling after three days of gains
- Food inflation is expected to rise to 6%
- Euro (EUR) is rising even as German inflation cooled
- German CPI eased to 1.8% YoY
The Pound-Euro (GBP/EUR) exchange rate is falling after three days of gains. The pair rose 0.3% in the previous session, settling on Wednesday at €1.1599. It traded between €1.1546 and €1.1614. At 20:30, GBP/EUR trades -0.30% at €1.1566.
The pound is under pressure on Thursday amid ongoing concerns about the outlook for the UK economy. A survey by the British Retail Consortium showed that two-thirds of British retailers expect to increase prices over the next year as a result of April’s employer tax increase, which continues to drive up costs.
The survey found that retailers representing over 9000 stores found 85% increased prices after the government lifted National Insurance contributions and the national minimum wage. 65 predict further rises in the coming year.
The BRC, which represents the UK’s largest retailers, forecasts that food inflation will be up 6% by the end of this year, adding more pressure to household budgets.
The data comes ahead of the Bank of England’s interest rate decision in early August, when policymakers are expected to cut rates by 25 basis points, although a three-way split among policymakers is expected, which could increase could increase the uncertainty and conflicting risks posed to the UK economy by rising inflation and a weakening job market.
The EUR is rising despite German inflation cooling below the European Central Bank’s 2% target for the first time in 10 months. Consumer prices rose 1.8% year on year, down from 2% in June. This was also below forecasts of 1.9%. The data support the view that the ECB has brought inflation under control.
The data comes after French figures earlier showed the price increases of just 1% for the 6th month, while CPI in Italy dropped to 1.7%.
ECB officials have become increasingly confident that inflation is under control and could even undershoot the 2% target for the extended period of time starting in Q3.
The ECB left interest rates unchanged at 2% in the most recent meeting. The interest rate has been left unchanged 7 times in the current cycle.