EUR losing strength faster than GBP
As expected, the informal EU leaders summit over dinner yesterday evening did little to ease market uncertainty about the euro crisis. Indeed, the latest comments from French and German officials suggest it will be no small task to paper over major policy divisions. The European Central Bank’s President Mario Draghi also stated that issuing jointly backed European debt would not make sense until the euro zone reaches some kind of fiscal union.
In the UK, the release of the MPC minutes showed the members voted 8-1 to maintain asset purchases at £325bn and Bank Rate at 0.5% in May. David Miles was again on his own in calling for a £25bn extension of QE, however, the tone of the minutes suggest several members were close to joining him describing the May policy decision as ‘finely balanced’. There is now a building expectation of another £50bn of QE this year in September. This caused GBP to fall although vs EUR the affect was masked.
Meanwhile, the wettest April on record kept consumers away from the UK high street with a 1.0% fall in retail sales (ex. fuel). With real wage growth still negative, the news flow dominated by double-dip recession and the euro zone crisis, a consumer-lead recovery seems unlikely.
This mornings UK GDP figures have disappointed even more so than expected with a reading of -0.3% (-0.2% had been hoped for). This has kept GBP weak, although not visibly so versus EUR.
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