Beyond Currency

"The market now fully believes in the UK's recovery from the Pandemic and the almost total reopening of the economy next month will accelerate the process.

It remains to be seen just how long the headlong pace will be maintained and the longer-term issues that will need to be addressed as the removal of stimulus packages leave the economy exposed.

The Bank of England remains confident that although employment will take a hit as businesses that have solely relied on furlough payments to keep staff employed suffer or fail, the anecdotal evidence from the latest growth figures shows that businesses began gearing up for the reopening almost as soon as the Prime Minister announced his plans.

As the public regains their socialising and spending habits, it will be the consumer that is the main driver behind a sustainable recovery.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Preliminary data for UK GDP in the first quarter was released yesterday. It showed that the economy shrunk by 6.1% in the year to March. The month-on-month data for March showed that the economy grew in that month alone by 2.1% following a marginal rise in February.

This shows that the economy began to recover as soon as Boris Johnson announced his Roadmap to Freedom.

Companies across several sectors of the economy began to prepare for the reopening and Johnson has been able to keep the plan on track, thanks to the continued success of the rollout of vaccinations.

Looking forward, given that the retail sector opened in the second week of this quarter a significant reduction in the remaining differential between now and the pre-Covid level should be expected.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Queen introduced Her Government's Agenda of new Bills to be brought before Parliament yesterday as opposition Parties looked on licking their wounds from another mauling.

Going forward it will be business as usual for a party that has an eighty-seat majority.

Having announced measures that will almost certainly bring the lockdown to an end and downgrading the threat level from Coronavirus, Johnson faces two significant issues as he gets back to introducing measures that he promised in the Conservative manifesto more than eighteen months ago,

Making sure Brexit actually brings the social and economic benefits that were promised will be the first line of business, while quelling further calls for an independence referendum in Scotland will be the other.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Prime Minister Boris Johnson announced the penultimate point on his Roadmap to Freedom yesterday. Restrictions on meeting inside, eating and drinking inside bars and restaurants and hugging will be lifted from next Monday.

The success of the vaccination programme means that the UK is now just a single step away from being free of restrictions.

Concerns are still being voiced about foreign travel particularly given the worsening situation in India. Johnson called for common sense to prevail as he spoke of his expectations that people would remember the dark times of last Autumn when it seemed that the spread of the Pandemic was close to being out of control.

Local elections held last week in the UK were the first significant test of the Government’s actions over both Brexit and the Pandemic. Apart from the mayoral election in London the Conservative Party achieved just about every goal it set itself.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Bank of England is not preparing to provide any further support when the Chancellor brings the Government’s furlough arrangement to an end in September.

Governor Andrew Bailey believes that the pace at which the economy is emerging from the Pandemic will be sufficient to ensure that the number of business bankruptcies will be controllable.

Following comments made by departing Chief Economist Andrew Haldane last week it is fairly clear that he is not in agreement with how the Bank Intends to manage monetary policy going forward, perhaps more pertinently he has a different idea of what is to come as the economy opens up completely.

Haldane has been the most bullish of the members of the MPC during his tenure. He was the first to predict a V-shaped recovery although at the time this had nothing to do with the rollout of a vaccination.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Having contracted by the largest amount in 300 years it is entirely plausible if not inevitable that the economy would rebound at its fastest rate in 70 years.

Andrew Bailey demanded that the markets not get carried away by a recovery which simply takes the country back to where it was in 2019.

The meeting of the Bank of England’s Monetary Policy Committee that was held yesterday raised its forecast for full year GDP to 7.25% and confirmed its belief that the economy would return to pre-Covid levels by the end of the year.

The increase in the forecast from 5% three months ago is based on the pace of growth in the retail sector in particular and is in spite of several well-known High Street Brands either reducing their bricks and mortar presence or disappearing entirely.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Bank of England’s Monetary Policy Committee meets later this morning and is almost certain to leave both official interest rates and the level of Quantitative Easing unchanged.

In keeping with other G7 nations, the Central Bank wants to be certain that the recovery has solid foundations before it begins to taper bond purchases.

Concerns remain that the withdrawal of the Government’s stimulus measures will have a significant effect on the economy, employment in particular, and could drive the bank into the unprecedented step of introducing negative interest rates later in the year.

With Andrew Bailey having undertaken to provide UK banks with as much notice as he can, he now faces a delicate decision in how much advance guidance he can give to the wider market. He cannot tell one specific sector without informing everyone.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The recovery of the UK economy continues to gather pace. It appears that every piece of economic data fits perfectly into the puzzle.

However, the degree of stimulus and support that has been provided to ensure that the country would be prepared to reopen once the Pandemic was under control will at some point need to be withdrawn and that will bring its own concerns.

Fears continue to grow that as the Government's main piece of legislation; the furlough scheme, will be withdrawn before the economy is fully on its feet.

The scheme has been extended twice and now ends in September. Whether that will be sufficient is open to debate. Businesses that have not been able to generate sufficient cash flow given almost an entire quarter to recommence their operations probably never will.

"

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The recovery of the UK economy continues to gather pace. It appears that every piece of economic data fits perfectly into the puzzle.

However, the degree of stimulus and support that has been provided to ensure that the country would be prepared to reopen once the Pandemic was under control will at some point need to be withdrawn and that will bring its own concerns.

Fears continue to grow that as the Government's main piece of legislation; the furlough scheme, will be withdrawn before the economy is fully on its feet.

The scheme has been extended twice and now ends in September. Whether that will be sufficient is open to debate. Businesses that have not been able to generate sufficient cash flow given almost an entire quarter to recommence their operations probably never will.

"

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"As the end of one of the most painful periods in modern history ends, the Government will need to make sure the recovery is self-sustaining before it withdraws completely.

It remains to be seen how successful the total reopening of the economy will be while fears remain that opening the border in any meaningful way could see vaccination-proof variants of Covid-19 arrive.

There are still several loose ends to be tied up as far as Brexit is concerned.

While the Pandemic has allowed both Westminster and Brussels to dance around the issue, real issues remain to be finalized with the EU in no mood to be accommodating following the row over vaccines.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.