Pound Euro Exchange Rate Tumbles as National Insurance Hike Unveiled

Pound Euro (GBP/EUR) Exchange Rate Hits Six-Week Low on Plans to Raise National Insurance

(Updated 15:10, 7/9/21) The Pound Euro (GBP/EUR) exchange rate bounced off a seven-week low of €1.1605 earlier today but remains subdued, currently trading around €1.163.

The downside in Sterling was exacerbated by news that the UK will raise national insurance contributions by 1.25% on top of planned tax increases in a move that has drawn fierce criticism from business groups.

Employers and economists have warned that the hike could dent the UK economy and cost jobs by putting increased pressure on already-struggling businesses.

Stephen Phipson, Chief Executive of manufacturers group Make UK, said the move was ‘ill-timed as well as illogical’:

‘Economic history tells us that job cuts are most likely when the economy starts to open again after a downturn because firms need the capital to reset. After witnessing large scale redundancies at the height of the pandemic and the plug being pulled on the furlough scheme, Government should be putting in place measures to protect jobs and incentivise recruitment.

‘An increase to NI would have the opposite effect. As such Government must examine others streams of raising revenue; we need to nurture growth not put an anchor on recovery.’

Kitty Ussher, Chief Economist at the Institute of Directors, commented:

‘This is an extraordinary time to be adding additional burden to business and the cost of employing staff, just as it looks to recover from the pandemic. It smacks of political opportunism, exploiting public sentiment at the expense of some of the most productive and entrepreneurial segments of the economy.’

Sterling, which was already losing ground, fell even further following the news, but has since managed to recoup some of its losses.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Slumps on Positive Eurozone Data

The Pound Euro (GBP/EUR) exchange rate initially tumbled this morning, after German industrial production figures printed just above expectations.

Sterling, meanwhile, remains open to losses amid a lack of significant UK data.

Pound (GBP) Vulnerable in Absence of Data

The Pound (GBP) has been struggling today, as the gloomy tone around the UK’s economic recovery persists.

Yesterday’s UK construction PMI hit a five-month low as the supply chain crisis continues to cause disruption. Building firms were hit by Brexit-related staff shortages as well as soaring costs, with the latter caused by a sharp uptick in demand for materials.

The result suggest that supply and staff issues are stifling the UK’s economic recovery across multiple industries, after last week’s manufacturing and services PMIs revealed slowdowns and similar concerns.

Danni Hewson, financial analyst at AJ Bell, commented:

‘once again the big economic picture is being framed by labour shortages and supply chain snarl ups which have dented car sales and slowed the pace of construction.

‘No industry seems immune to the current challenges which look set to eat away at all that lovely recovery momentum which had been hoped would propel the UK through the long winter months.’

With no notable UK data today, Sterling continues to feel the weight of the supply chain crisis. In addition, rising UK Covid cases may also be exerting downward pressure on the Pound.

Euro (EUR) Boosted by Economic Optimism

Meanwhile the Euro (EUR) surged against the Pound at the start of today’s session, as German industrial output rose by 1% in July. This was higher than predictions of a 0.9% rise and the first increase in production since March.

The results show signs of life in the German industrial sector, which has been struggling amid global supply chain disruption. Some analysts hope this could indicate that German production has overcome the greatest challenges and will now slowly but steadily recover.

The German economic ministry said:

‘Even if the supply bottlenecks with semiconductors, which have slowed down production, are likely to persist for a while, the output figures suggest that industry could have overcome its low point’.

More positive news came as both the Eurozone’s final employment change report and most recent GDP growth rate were revised slightly higher to beat expectations. The former was upwardly revised from 0.5% to 0.7%, while the latter came in at 2.2% – 0.2% higher than previous estimates.

These upbeat reports seem to have boosted the Euro despite a larger-than-anticipated fall in Germany’s ZEW economic sentiment index. The gauge fell to 26.5, its worst reading since the Covid pandemic hit in March 2020.

Pound Euro Exchange Rate Forecast: GBP/EUR Set for Further Losses?

With no notable UK data out until Friday, the Pound Euro exchange rate could potentially slip further. Friday’s data isn’t set to be particularly strong, either, so Sterling may face some headwinds.

EUR investors will be looking to Germany’s balance of trade figures on Thursday – which are expected to show a widening surplus – for fresh impetus. But the big release will be the European Central Bank’s (ECB) interest rate decision on Thursday. Will a more hawkish approach from the bank boost EUR even higher?