The EUR/GBP pair declined after the release of the UK's services PMI data that matched expectations. The UK's PMI came out to be around 53.7, which was in line with the market's expectations. In addition, inflation in the UK is expected to rise further, which also supports the Pound Sterling (GBP).
According to a poll of analysts, 1 out of 3 female workers in the UK are looking for early retirement citing health issues. So that's yet one factor that points towards the labor shortage in the country. In other words, early retirement will further fuel inflation in the country.
UK's CPI Reading Remains Above 8.5%
Despite all the actions taken by the Bank of England, inflation in the UK remains stubbornly high. If we look at the CPI reading, it was higher than 8.5% even though gasoline prices have dropped recently.
Such a high reading of the CPI means that the BoE will have to raise interest rates throughout the rest of 2023. But let's not forget that the UK's labor market is in bad shape already and more rate hikes will lead to further deterioration.
Meanwhile, UK companies are planning to move their investments to other EU countries such as Germany. This will allow them to solve the issue of customs delays occurring after the Brexit event.
Looking ahead, the Euro will face additional pressure amid the slowdown in the Eurozone inflation. According to experts, the decline in oil prices has helped in easing the EU inflation but the core inflation remains unchanged at 6.8%.
Now that the EU's inflation is showing signs of slowing down, the ECB may slow down in its tightening campaign. However, the ECB member Nagel made it clear that no such decisions have been made so far.
According to one expert, the EU's economy is under threat from the high-interest rates introduced by the ECB. In fact, Citi analysts have forecasted the Euro area's GDP to be near 0.3% for this year.