Beyond Currency

"The Bank of England’s Monetary Policy Committee will meet today and tomorrow but traders and investors will only be interested in comments made by Governor Andrew Bailey following the decisions on interest rates and levels of support for the economy.

Both are likely to remain unchanged.

It will be interesting to note whether the attitude to the pace of the recovery is affected at all by the outcome of the FOMC meeting which concludes this evening.

Bailey and Jerome Powell face similar issues, both are going to need to hold back potentially overheating economies and deal with inflation that both admit will break above their official targets.

Bailey will most likely be backed in whatever comments he makes by colleagues both at the Bank and on the MPC.

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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 Ipsos MORI Political Monitor which measures confidence in the UK showed that 43% of the population believe that the economy will improve in the next twelve months.

The survey showed that confidence is at its higher level since 2015, ironically just as the Brexit campaigns were beginning.

While that is hardly surprising, the main thing to take away is the belief that the Government is dealing with the current crisis in a manner that will lead the country back to some kind of normality.

Andrew Bailey, the Governor of the Bank of England, spoke early yesterday morning about his confidence that the course that has been set by easing of monetary policy and recent fiscal support means that the economy will attain a level higher than at the start of the Pandemic sooner than had been expected. It is expected that will happen around the end of the year.

While optimism continues to rise, there is still the concern that the return of children to school just over a week ago may lead to an increase in infections.

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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 economy shrank in January.

The barely surprising statistic that the economy contracted by 2.9% in January and the fact that it was appreciably better than predicted barely registered.

The lifting of lockdown measures, the barely credible success of the vaccination programme and the forward-looking measures announced by Rishi Sunak in the Budget have given the country a shot in the arm that was becoming desperately needed.

The debt of gratitude the nation owes to both the NHS and the scientists who discovered the vaccine is immeasurable and may in time be compared to the breaking of the enigma code in World War Two.

The world's economy has been subject to globalization as just about every form of communication has been sped up and forever changed by the digital age and the invention of the world wide web and internet.

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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.

"Andrew Bailey the Bank of England Governor sees a light at the end of the tunnel for the economy as the country begins to emerge from the yearlong effect of the restrictions driven by the Pandemic.

Bailey supports the steps taken by the Chancellor recently but acknowledges that inflation may be a consideration going forward. The initial rise in the rate of inflation may be technical as the collapse of fuel prices a year ago falls off the annual calculation.

Such an event won’t spur any action from the Bank which has, so far nor been as keen to discuss the inflationary effect of stimulus measures as either the Fed or ECB.

The Chancellor continues to face questions over the new measures he has put in place. He commented yesterday that the recovery will be investment driven and consumer led actions such as last year’s eat out to help out scheme will not be necessary.

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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 dust has definitely settled on the Budget, but economic reality remains.

Concern that there is a significant crisis looming in the employment market is driving fears that the Chancellor may need to return to the House of Commons in the Autumn with another round of stimulus plans.

The length and breadth of the Pandemic that has reached into every nook and cranny of the U.K. economy has meant that the nature of the social recovery is likely to leave any economic recovery in its wake.

Chris Whitty’s comments earlier in the week that there will be another surge in infections as the economy reopens meant that alarm bells sounded again.

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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 building that the UK’s recovery from the Pandemic will be a flash in the pan, and the country can expect to return to a consistently lower level of growth that will require interest rates to remain low for several years and even necessitate negative interest rates.

The concerns voiced by independent members of the MPC that the recovery will not be sustainable without a move to negative rates are gaining pace and the balancing of the books with regard to public debt may take longer and require more significant tax rises than were delivered by Rishi Sunak in his budget last week.

The positive effect of the release of pent-up demand when non-essential retail outlets reopen next month will be relatively short lived, reminiscent of the lead up to Christmas but on a larger scale.

But that will not provide long-term gains in other areas of the economy with a nuclear winter in the employment market entirely possible.

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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.

"Bank of England Governor Andrew Bailey showed to be optimistic about the recovery of the UK economy if cautiously so, in an interview yesterday.

While he retains concerns over certain aspects of the recovery, employment in particular, he believes that the recovery from the recession, putting aside the Pandemic which he feels is a once in a century event, will be stronger since it is a recession like no other.

In particular, household finances are stronger than in a regular recession. Unemployment is likely to remain a major issue but, again, it won’t be as much of a burden as in previous recessions.

He still suffers from a dilemma which is either a cyclical phenomenon in which the economy simply runs out of steam and needs a correction, or will it always be in reaction to a global event, such as the current pandemic or the downturn which followed the global financial crisis.

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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.

"Now that the dust has settled on Rishi Sunak’s support now, tax later Budget, it is very clear that it will be big business that foots the majority of the bill. Its increased contribution to the Treasury’s coffers from 2023 will be £17 billion. Remember, that is the additional sum that will be paid when the rate rises from 19% 5o 25%.

This was not a Conservative budget by any means. Tax increases, no cuts to services, continuing support measures. It is no wonder Tory Grandees were spluttering in disbelief. Apart from the incredibly unfair treatment of the NHS, it was almost a Tony Blair style piece of work.

Short term, it is the that begins this morning with schools reopening that is providing optimism. Almost 22 million doses of the vaccine have been delivered. Rates of infection, hospital admissions and fatalities are all falling.

However, the country is still in lockdown and will be until after Easter. Once the reopening of the economy happens on April twelfth (assuming stage one goes as planned) that will be the point at which the effectiveness of the stage plan should be judged

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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.

"Over the past year the Pandemic has been unpredictable, and any plans made by the Government to tackle the crisis and provide support to those most affected have been subject to change almost as soon as they have been announced.

In his Budget presented to Parliament this week, Rishi Sunak has shown a degree of caution, in that the measures he announced have provided support rather than stimulus.

While continued support is vital to ensure that life goes on, employment is going to continue to be an issue and too little has been done to stimulate the jobs market going forward.

The Pandemic is likely to scar the economy for a generation and there are genuine fears that scenes reminiscent of the days of high unemployment that accompanied the major changes initiated by Margaret Thatcher may return.

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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 Office for Budget Responsibility announced following yesterday’s presentation by Chancellor Rishi Sunak of his spending and taxation plans that the tax burden in the UK would rise to its highest levels since the 1960’s when all of the deferred items kick in.

Sunak’s second budget was, in his own words, not popular but honest. Large firms will be taxed at a rate of 25%, rising from 19% starting in 2023, while by the middle of the decade 1.3 million more people will be paying income tax.

Most measures to reduce the level of Government borrowing were deferred until the recovery is well on the way to stabilising the economy while several of the measures put in place to provide support to those most affected were extended.

The furlough scheme will stay in place until September although employers will be expected to contribute 10% in July and 20% in August and September.

The stamp duty holiday remains in place while the scheme to support first time buyers that was announced recently will come into force immediately.

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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.