EUR/GBP surges as UK stagflation scenario approaches

The EUR/GBP pair reached a weekly peak at 0.8711, driven by concerns over the UK’s economic stagnation and potential stagflation. UK GDP forecasts suggest a possible contraction in Q3, with expectations of a -0.1% decrease in QoQ, pressuring the Pound.

The Bank of England’s mixed signals, with Governor Bailey’s cautious stance on inflation and Huw Pill’s rate cut discussions, add to GBP volatility. Euro gains against the Pound are amidst a challenging economic outlook for the UK, with the Eurozone also facing inflationary pressures.

UK GDP forecasts indicate a -0.1% QoQ contraction, which, combined with elevated prices, suggests a brisk stagflation. Bank of England Governor Andrew Bailey’s comments indicating inflation is slowing down weakened the Pound Sterling.

Inflation in Germany remains stickier at 3.8% YoY in October, while EU Retail Sales shrank by 0.3% MoM in September and 2.9% over the last twelve months. European Central Bank (ECB) officials have mixed readings, with Martin Kazaks not ruling out further tightening and Pierre Wunsch suggesting the economy may be entering a stagflation phase.