Europ Update – 3 September 2024

GBP
After a quiet data week last week, the UK took centre stage this week with plenty of first-tierdata sets released, including the latest figures on unemployment, inflation, growth and retailsales. These could all contribute to further speculation on the Bank of England’s interest ratepolicy, which has held the gaze of financial markets for some time.The data released this week gave us a holistic look into the state of the UK economy. Firstly, wesaw the latest view of the employment market with UK average earnings, claimant count, andunemployment rate, all of which were released on Tuesday.Previous data showed a slowdown in the UK labour market, which was anticipated to havecontinued through July, albeit at a slower pace. Data showed a reduction in permanentcontracts and slowly rising redundancy numbers, but unemployment came in lower thanexpected at 4.2%. These could be potential signs that an economy has the capacity for aneasing in monetary policy, i.e. lower interest rates.On Wednesday, the latest CPI inflation data was released, showing both core and headlineinflation rates for July in the UK. Inflation was expected to show a slight increase in pricesthroughout July to 2.3% year-on-year from the previous 2% figure but was reported slightlybelow expectation at 2.2%. Services inflation and wage inflation are particular focus areas inthe data with the Bank of England rate-setters.The latest GDP growth data was released on Thursday, followed by retail sales figures on Friday.Growth increased by 0.6% between April and June, down from 0.7% in Q1. Retail Sales rose by0.5% in July 2024, up from -0.9% in June.Current market expectation is for two further cuts to the base rate by the Bank of Englandbetween now and year-end, although Andrew Bailey, Governor of the Bank of England, hasreminded markets not to expect a rapid cycle of easing.EURThe euro is on summer holiday, and enjoying a relaxed climb over recent weeks, which hasbeen positive for those holding the single currency.The euro is typically a risk-sensitive currency, meaning it can be purchased heavily as thefinancial market risk outlook increases. This has been happening as we see increased action inequity markets and a short-term move away from safe-haven currencies. This seems to havebenefitted the euro, as it moved to a three-month high against the pound and a seven-monthhigh against the US dollar last week before slipping into a tight trading range at the end of theweek.The main data release this week was the EU ZEW survey on Wednesday, which showedanalysts’ weakening outlook for the EU economy. This follows recent data highlighting that boththe French and German economies (the EU’s two largest economies) were underperformingboth the UK and the US, with the latest growth data reporting 0.3% and -0.1% respectively.