Pound Euro (GBP/EUR) Exchange Rate Slips Lower as UK Energy Bills Set to Soar
(Updated 15:20, 9/8/22) The Pound Euro (GBP/EUR) exchange rate continued to soften today as reactions to the latest UK energy bills forecast continued to pour in.
Cornwall Insight, a leading energy market consultancy firm, upwardly revised its forecast for UK energy bills next winter. The company now expects bills to hit £4,266 per year in January 2023.
Many industry figures have called for emergency action from the government. Lib Dem leader Ed Davey warned that surging costs could result in a ‘social catastrophe’, while the head of the Confederation of British Industry (CBI) called the jump in bills ‘terrifying’.
Meanwhile, outgoing Prime Minister Boris Johnson has refused to put forward an emergency budget, arguing that it was up to his successor to enact large fiscal policy decisions. But the two candidates vying for the premiership – Liz Truss and Rishi Sunak – have resisted calls to unite and work on a plan to tackle soaring bills due to a ‘fundamental difference of opinion’. The leadership contest has become increasingly bitter, with Sunak describing Truss’s economic plans as ‘electoral suicide’ for the Tories and Truss responding by suggesting Sunak was a ‘declinist’ who was spreading ‘portents of doom’.
.@KamaliMelbourne: Why won't Liz Truss and Rishi Sunak sit down together and plan for the energy price cap increase?@Mark_J_Harper, who is supporting Rishi Sunak in the leadership contest, says there is a "fundamental difference of opinion".https://t.co/PAiZ4D1jU3
📺 Sky 501 pic.twitter.com/CYGqAjMyhk
— Sky News (@SkyNews) August 9, 2022
Nigel Pocklington, CEO of energy supplier Good Energy, explains the political and economic instability facing the UK:
‘This is an emergency on the scale of the 2008 financial crisis or Coronavirus. In May, the government announced measures to shield poorer households from the expected rise, but a gap in that support of £600 will open up in October and widen to over £1,000 in January.
‘The two candidates for Prime Minister are squabbling over fringe measures that don’t begin to tackle the issue. VAT cuts will save 5% and a moratorium on social and policy costs a similar amount.
‘Tax and National Insurance cuts won’t bridge the gap for poorer households. To avoid the economic and social harm that will come with these rising bills, and to help people plan how they are going to get through the winter, we need to be clear on our plan by the time the new cap is announced.
‘If we don’t see significant action to help people and businesses before the winter then the cost-of-living crisis will be compounded further. And whoever is in number 10 in December will be wishing something had been done sooner.’
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Falls amid Fresh Economic Warnings
The Pound Euro (GBP/EUR) exchange rate dropped to a two-week low this morning as concerns about the UK economy worry GBP investors.
At the time of writing, GBP/EUR is trading around €1.1839, down from €1.1854 at the start of today’s session.
Pound (GBP) Falls as Economic Woes Mount
The Pound (GBP) slipped this morning as investors once again fret about the UK’s bleak economic outlook.
Last week’s recession forecast from the Bank of England (BoE) continues to hang over Sterling, while fresh warnings and downbeat comments are pushing GBP lower.
An unexpected rise in UK retail sales last month has failed to support the Pound. The increase was due to surging inflation pushing up prices, while the actual volumes of sales declined.
Paul Martin, UK Head of Retail at KPMG, said that things will only get worse:
‘The summer could be the lull before the storm with conditions set to get tougher as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates. With stronger cost of living headwinds on the horizon, consumers will have to prioritise essentials, and discretionary product spending will come under pressure.’
Meanwhile, UK energy bills are now set to rise to £4,266 a year from January due to runaway energy prices. The latest forecasts from Cornwall Insight are a huge upward revision from last week’s prediction of £3,615 due to a change in the way Ofgem calculates the price cap.
The cost-of-living crisis is piling pressure on Rishi Sunak and Liz Truss – the two candidates in the race to become Tory leader and Prime Minister – to announce further fiscal support for families and businesses. However, their plans are coming under intense scrutiny. Truss – the favourite to win – in particular has drawn criticism over her policy plans.
The worrying economic outlook paired with political uncertainty is weighing on Sterling today.
Euro (EUR) Capped by German Economy Fears
Meanwhile, the Euro (EUR) is enjoying its strong negative correlation to the US Dollar (USD) as the latter faces some selling pressure.
Economic concerns in the Eurozone are capping the single currency’s gains, however.
A new study from the Institute for Employment Research (IAB) suggests that Germany – Europe’s largest economy – will lose €265bn by 2030 due to Russia’s invasion of Ukraine and high energy prices.
The ongoing war has caused significant uncertainty for Germany and the wider Eurozone. Today, these concerns are limiting EUR’s upside against GBP.
Pound Euro Exchange Rate Forecast: US Inflation to Affect GBP/EUR
A lack of data from both the Eurozone and the UK could limit further movement in the Pound Euro pair today.
Although the UK faces economic and political headwinds, so does the Eurozone. As a result, Sterling’s losses could be limited.
Tomorrow may bring some more pronounced movements due to the latest US inflation rate release. As the US is the world’s largest economy, the data could ripple out through global markets and cause some volatility in GBP and EUR.
In particular, EUR’s negative correlation to USD could again come into play. If US inflation continues to climb, increased expectations of Federal Reserve rate hikes may boost the US Dollar, thereby denting the single currency.