Beyond Currency

"Chancellor of the Exchequer Rishi Sunak will present his budget to Parliament later today.

In spite of calls from senior Conservatives from another era to raise taxes, Sunak will add to the vast increase in Government borrowing he has embarked upon to ensure that first the country survives the Pandemic economically, then it recovers to take its place in the world post-Brexit.

He is likely to take his cue from the plans already in place to end the lockdown in stages and effect a gradual change from support to stimulus.

There have been several leaks, most likely intended, of his plans. The focus will be on employment, those sectors of the economy most badly hit by the Pandemic and a British staple, property.

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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.

"Details are emerging of just the type of Budget Rishi Sunak will deliver to Parliament tomorrow.

The emphasis will be on welfare, support and ensuring that the nascent recovery is able to flourish.

The success of the vaccination programme has been a gift that the Prime Minister can leverage to allow the economy to be well on the way to pre-Pandemic levels of growth before the inevitable tax increases have to be invoked.

Johnson confirmed yesterday that the vaccines that are currently available to NHS England are each viable against new variants of the virus. The incredible pace of the vaccination programme will continue with at least twenty-five million people being offered the jab well before the end of this month.

Between Johnson’s four-stage plan for the easing of lockdown and a suitably expansive Budget from Sunak, there is a growing sense of optimism that the UK will emerge from the pandemic in a strong condition relative to the rest of G7.

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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 Chancellor of the Exchequer Rishi Sunak will present his budget to Parliament this Wednesday.

From the degree of advance guidance that has been given it is expected to be supportive, with measures that have been put in place to protect those most affected by the Pandemic evolving into support for the most affected sectors and schemes to promote jobs.

This is going to be a gigantic balancing act and Sunak, who did the rounds of Sunday current affairs TV yesterday, promised to be honest with the public about the prospects for the country’s finances while providing a level of support that ensures that the recovery is both stable and robust.

The UK has now vaccinated 20 million people. This will provide a significant boost to Boris Johnson’s four step plan for exiting the restrictions with the first step next Monday when schools will reopen.

This massive feat means that 28% of the population has now received at least one jab.

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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 controversial Universal Credit payment which lumps several benefits into one is likely to be increased for the rest of the year as unemployment is set to climb towards a high close to 8%.

The latest data showed that unemployment rose to 5.1% from 5%, but the real test will come as firms that relied on their staff being paid by the Government find cashflow impossible to manage and either close or drastically reduce their workforce.

The budget that will be delivered by the Chancellor next week will be a delicate balancing act between not just support and regaining control of the economy but also a matter of support being targeted while the level of borrowing is brought back to acceptable levels.

Unemployment will become the major issue globally as working methods that have been adapted to suit lockdown conditions become the norm.

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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 Government's staged plan to reopen the economy as the number of infections continues to fall has provided a boost to the country both socially and economically. The vaccination programme has become self-fulfilling, with the infrastructure that has been set-up working very efficiently.

Next week the Chancellor will present his Budget to Parliament and that is when the realities of the damage done to the economy by the three lockdowns it has taken to bring the virus under control, will be laid bare.

Rishi Sunak is being pressured by business leaders, trade unions and the Opposition to continue several of the support measures that he has put in place.

It seems likely that the stamp duty holiday for property purchases will remain in place. In fact, there are even calls for it to be abolished entirely, since it appears to be an old-fashioned and outmoded form of taxation. Since it raised close to £12 billion in 2019/20 that is unlikely to happen since Sunak is trying to repair the country’s finances not, add to his problems"

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 unemployment rate rose to 5.1% in January. The increase was wholly expected and did nothing to take the shine off Sterling’s continuing rally.

The single lasting economic effect of the Pandemic in every developed nation will be unemployment as businesses of all sizes struggle to come to terms with the reality of a year in lockdown.

No one doubts that the crunch time for unemployment will be when the economy is opened up again and support is withdrawn.

Cash flow will be the major issue and it is unclear whether the Chancellor will extend the furlough scheme at all but if he does there will be two questions that need 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.

"The UK has been able to begin to take full advantage of the success of its vaccination programme by announcing a staged lifting of lockdown measures culminating, it is planned, for restrictions to be fully lifted by the late June.

As Boris Johnson commented when questioned by journalists at last evening’s press briefing, there will always be those who want him to act with more haste just there will be those who advise greater caution, but he believes that this plan can be seen as irreversible yet able to be delayed if circumstances demand.

The crux of the lifting lies with the gap between the four stages of the plan which means that data will be used to determine that it is safe to move on.

With shops being able to reopen on April 12th, the second quarter will see the recovery begin in earnest with schools reopening and certain social distancing rules relaxed 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.

"In spite of the high degree of confidence being delivered by the undoubted success of the Government’s vaccination programme, independent members of the Bank of England’s Monetary Policy Committee still believe that negative rates will be necessary later in the year.

There is a clear fracture between the independent members of the committee and the Bank of England’s Officials. It is widely expected that the UK will see a tsunami of demand in the first one or two quarters following the loosening of lockdown measures, but it is once the euphoria has died down that the concerns begin.

Unemployment remains a major concern. The Government’s focus during all three lockdowns has been more around support than stimulus and it is naive for Chancellor Rishi Sunak to believe that the withdrawal of restrictions will provide all the support the economy needs. The grow the economy back to health refrain sounds more and more like a Churchillian rallying cry and less like a policy statement.

Next week's budget will probably extend the furlough for what will certainly be the last time, also provide house buyers the continued benefit of a stamp duty holiday but will then hopefully provide, not support, but stimulus to drive the economy forward.

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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 faces a dilemma as it begins to consider the release of lockdown as despite a high level of pent-up demand which is likely to see inflation begin to rise, there will still be a massive overhang of businesses struggling to get back to where they were pre-Pandemic let alone begin to grow past that level.

It will be a virtually impossible square the circle, as on the one hand retail is expected, despite the damage caused to its balance sheets, to see an impressive bounce back while manufacturing and services struggle to retain customers and compete for orders.

The Chancellor will want to project optimism in his budget but will be acutely aware that reducing support by any meaningful amount could spell disaster.

This means that Monday’s announcement from the Prime Minister of the roadmap for the gradual withdrawal of restrictions will be critical to both the economy and the social welfare of the population.

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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 Deputy Governor of the Bank of England David Ramsden believes that given the current risks to the economy that the level of support being provided through fiscal and monetary stimulus remains justified.

Over the past few months there has been plenty of discussion about whether negative rates are an appropriate policy tool. Ramsden believes that the discussion has been no more than contingency planning should support for the economy using QE and financial stimulus fail to avert any significant downturn.

Ramsden along with his boss, Governor Andrew Bailey and Chief Economist Andrew Haldane have remained unconvinced, not about the effectiveness of taking rates negative, but more about such a move being necessary.

Independent members of the MPC have been less optimistic about the recovery and have therefore favoured a serious study of the possible outcomes but the technocrats appear to have won the day.

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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.