Beyond Currency

"Evidence is emerging that the recovery in the UK economy is even more robust that had previously been presumed. Job vacancies have recovered to a level last seen before the first lockdown over a year ago.

Sectors that were least affected by the pandemic such as logistics and construction are seeing a particularly strong recovery.

There had been concerns that Brexit would have an effect on the services sector but so far, that area of the economy, which makes up 80% of output, remains strong.

Concerns remain that there will be several businesses whose survival depends on support from the Government and when the furlough scheme ends in September, it could lead to a significant rise in unemployment. Analysts believe that those fears could be overdone with the economy building a far stronger base that had at first been 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.

"Each major or G7 economy will face common issues in the coming months as the effects of the Pandemic lead to rising unemployment while the amount of monetary support coupled with historically low interest rates sees inflation begin to rise.

Inflation has hardly been an issue for the global economy for a generation and despite the concerns voiced by investors, Central Banks continue to adopt a sanguine attitude expecting the market to trust their judgement.

As well as common issues, each economy will face unique demands that will need to be managed both effectively and efficiently.

In the UK, the issues around Brexit have not been dealt with and could come back. So far, data shows that following a near collapse of trade in January due to the confusion brought about by the change in documentation business has begun to recover.

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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 partial lifting of restrictions in England has proved that despite the record volumes of online shopping that took place during the lockdown, there is still a place for bricks and mortar retail outlets.

Major stores are reporting record takings only seen at Christmas as they struggle to keep pace with demand. However, it is likely that the initial burst of action will level off in the next few weeks as pent-up demand is satisfied.

The number of people in larger stores is being carefully regulated but even a casual observation raises concerns about an upsurge in cases of Coronavirus.

The Government and scientists will be closely observing the data to confirm that the next stage of the road map can take place next month.

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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.

"Shops, pubs, and leisure facilities reopened in England yesterday and it was clear to see the level of pent-up demand that was released. Ques for shops snaked around the block gyms were full before it was even daylight.

Prime Minister Boris Johnson pleaded with the public to act both sensibly and responsibly in order for the next stage of the roadmap to be achieved.

The savings rate in the UK has skyrocketed during a year of lockdowns and yesterday saw the pressure valve released.

In order for expected economic recovery to continue and for the country’s finances to have a chance to recover, there are three significant obstacles that need to be overcome.

First, the settlement of the proposed agreement between the UK and EU over trade through Northern Ireland needs to be finalized. Then, scares over the safety of vaccines need to be managed to ensure that the success of the vaccination rollout continues and finally the questions about how the nations finances will be restored to some kind of order needs to be answered.

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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.

"Non-essential retail, personal services like hairdressers, hospitality and gyms will reopen today in England as the benefit of the success of the UK’s vaccination programme sees a return to reality.

The country still has a long way to go to ensure that there is no need to reintroduce strict measures and there are several possible bumps in the road that need to be negotiated.

An image of a possible future for the UK has been seen during the Pandemic with Scotland, Wales, and Northern Ireland each making its own decisions over locking down and reopening. Elections to be held in the devolved administrations could see Scotland's demand for a second referendum in independence gather pace.

Prime Minister Boris Johnson has managed to stay the course of his plans for the reopening and, so far, it has been successful with the majority of the population obeying the rules. Between today and May19th the real test of the roadmap will take place.

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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.

"Concerns are being raised that the amount of support that will be available to small and medium sized businesses once the country begins to return to normal will be insufficient to bridge the gap in cashflow that is likely to be seen as a chicken and egg situation develops.

Employees will expect to receive wages, suppliers will want to be paid, utilities, premises and a host of other expenses will need to be met without any cash reserves to tide over operations as sales begin again.

Access to finance through traditional means will not be easily available as banks make commercial decisions about the viability of businesses and expect either greater security which simply may not be available or charge rates of interest that reflect the perceived risk.

Either way, it is not going to be easy for businesses to obtain financial support to tide them over and the Chancellor is, again, going to be expected to bridge the gap.

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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 pound is starting to lack the impetus to challenge the 1.40 level versus the dollar, despite the dollar’s recent correction.

A couple of weeks ago the market had taken on the characteristics that would have been expected from economies that were recovering at different paces, but that has now changed.

The success of the vaccination programme has given more support to the economy than the various support packages delivered by the Chancellor and the Bank of England.

With another stage in the reopening process taking place next week, the short-term prospects for the UK remain sound. Although official bodies are predicting strong growth for the UK well into 2022, there are concerns building that the withdrawal of stimulus and changes to taxation may hit the country’s longer-term prospects.

There are still the twin issues of rises in inflation and unemployment to be faced and the outlook could turn bleak as the country enters the Autumn/Winter period.

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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 UK’s recovery from the Covid-19 Pandemic is not only going to be far stronger than analysts predicted, but it will be a different kind of recovery.

Data released by the Office for National Statistics showed that in Q2 of last year, the first quarter where the economy was fully locked down, the economy shrunk by 19.5%. That is marginally worse than previously reported.

However, in the third and fourth quarters the recovery was a little stronger than first believed. In Q3, the rebound saw the economy grow by 16.9% and in Q4 1.3%.

In the context any previous downturn, not only has the contraction and recovery been immediate, but there has been no recession when judged by the classic definition of two consecutive quarters of negative growth.

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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 at a press briefing last evening that his Roadmap to Recovery remains on track and the opening of non-essential retail, leisure and hospitality outlets will take place on April 12th.

The lifting of restrictions will take place next Monday and it is expected that there will be a significant rise in activity confidence and spending as the country emerges, hopefully for the last time from full lockdown measures.

The economy is expected to reach its pre-covid level of GDP growth by the start of the fourth quarter, but it remains to be seen how resilient growth will be once the initial surge to satisfy pent-up demand.

The coming months will be the acid test for the retail sector, particularly bricks and mortar shops. Two of the largest chains, Debenhams and John Lewis will bring significant change to the High Street. John Lewis has announced that not all their stores will reopen while Debenhams is set to disappear 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.

"As the UK heads towards the end of its third lockdown, 41% of small and medium-sized businesses confirmed in a survey published this week that their cash position had weakened significantly during the first quarter. This situation is far worse in the tourism and hospitality sectors where the figure is closer to 80%

While this is a fairly obvious conclusion given the fact that the country was closed for the entire period, it serves as a reminder of the true situation facing the economy in the medium term.

Headline grabbing vaccination data and the support being given by both the Treasury and bank of England hide what remains a precarious situation and underlines the discussion that is taking place regarding the need for a further cut in interest rates later in the year.

For now, the Government is promoting the feelgood factor generated by the success of the vaccination programme while warning that the third wave sweeping through Europe currently illustrates that the country isn’t out of the woods just yet.

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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.