Beyond Currency

"Bank of England Chief Economist spoke yesterday of his opinion that the UK economy will recover at a rate of knots. The shock to the economy of the first lockdown was far more damaging than the second wave since the Government already had support packages in place and business knew to a certain extent what to expect.

Comparing this human disaster to the 2008/9 financial crisis, Haldane went on to say that although the loss of human life is tragic, the structure of investment and financing remains intact, so it is far easier to recover economically.

Haldane has consistently been the most optimistic Bank of England Official as his fellow MPC members barrel with the idea of negative interest rates as a way of boosting the economy going forward.

There is a concern over the effect on banks of such a move. Their profits would be hit which would probably be welcomed by the general public, but this would have a knock-on effect on their capital base which would, in turn, curtain lending.

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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.

"While the Government battles to gain control over the Coronavirus Pandemic and the new variants of the virus, it cannot shake off Brexit and the issues that are being caused by delays being seen, particularly by fishermen, in getting produce to market in Europe.

Yesterday saw a protest in the centre of London from Scottish fishermen whose trade has been seriously affected by delays caused by border checks. Prime minister Boris Johnson has pledged an interim support payment of £23 million to assist those hit hardest.

Numerous stories have emerged of cargoes spoiling in lorries delayed at the border by discrepancies in paperwork.

As the Pandemic continues to threaten the Health service, it seems that evidence is emerging to suggest that the nationwide lockdown is having the desired effect. The level of new infections is down by 25% in a week while the vaccination programme surges ahead. Hospital admissions and fatalities lag infections so a peak is still 7-10 days away.

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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 short-term prospects for the UK economy are, if anything, worsening as the measures taken by the Government to protect the population bite into economic growth.

The economy shrunk by 2.8% in November as the tier system was brought in and is likely to see a similar or even worse result in December as even more draconian measures were introduced.

The bad news has continued into the New Year with the travel and aviation sectors hit by the withdrawal of all travel corridors in the wake of new strains of the virus emanating first in South Africa, then in Brazil.

Analysts predict that every month of continuing lockdown adds three months to the time before activity in the UK returns to its pre-Covid level.

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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.

"While it was expected that he would by now be looking at ways to repay some of the borrowing that is running at a peacetime high, he is still on the frontline putting out fires.

The expectation remains that the vaccine will ultimately be the panacea that cures the country but economically the effect of the current lockdown, without even considering Brexit will take a considerable time to recover from.

A panel of analysts when asked their view on how long it will be before the economy is back to the pre-Covid level, the average response was two years’ time. Some even believe that it could take appreciably longer than that, possibly the entire length of this Parliament.

Estimates put the hit to the economy from the current lockdown at 3% in this quarter. With flash estimates for Q4 expected early next month a recession appears unavoidable, although the brief lowering of restrictions in October may have provided a degree of impetus before lockdown 2 took hold.

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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 excitement that greeted the rollout of vaccines to combat Covid-19 is close to being overshadowed by the continued spread of the virus which killed 1,564 people yesterday.

This is a record for a single day and underlines the massive human cost of the Pandemic not just in the UK, but globally.

The sense of euphoria provided by the approval, rollout, and delivery of two working vaccines has now turned into a desperate race to get people inoculated as the NHS gets closer every day to being overwhelmed.

The economic cost of the Pandemic is not yet being fully felt as the Government has done all it can to ease the burden but several of the measures that have been put in place are close to expiry raising concerns.

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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 spoke yesterday about his concerns for the recovery from the Pandemic as case numbers and fatalities continue to rise.

Bailey echoed the sentiments of Chancellor Rishi Sunak in commenting that the economy will suffer further before any improvement starts.

Bailey is encouraged by the rollout of the vaccination programme but sees that as a medium-term benefit while the current lockdown measures are hitting the retail and hospitality sectors particularly hard.

The trajectory of any recovery has been significantly flattened by the latest restrictions and a double-dip recession cannot be ruled out. Bailey expects the performance of the economy to be broadly in line with the Bank’s economic forecasts which were last updated in November.

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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.

"Data for like-for-like retail sales was published overnight. It showed just how bad 2020 was for the sector.

There was a slump in demand for fashion and homeware products while sales of foodstuffs grew by 5.4% over 2020. This perfectly illustrates the effect of the lockdowns that took place during the year. Overall, sales fell by 0.3%, the worst outcome since records began twenty-five years ago.

Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee spoke yesterday of the possibility that the Bank will need to add more stimulus to the economy This view was backed by U.S. investment bank Goldman Sachs which, in a report on the UK economy, said it expects a move as early as next month.

Tenreyro went on to discuss negative interest rates in the UK. While most analysts expect stimulus to be delivered in the shape of increased or faster purchases of bonds, she said that it was important that the Bank maintained the weapon of another interest rate cut and retained the possibility of taking rates into negative territory.

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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 Government continues to appear to overpromise in its desire to provide the country with a degree of hope in various directions.

It has been a feature of the Government’s tactics since before the election at the end of 2019 regarding Brexit, it continued through the first lockdown and has now reappeared over Coronavirus vaccinations.

There is some doubt over its ability to deliver on a promise to vaccinate every member of the four most vulnerable groups by the middle of next month and now, to provide every adult who wants a jab with one by the Autumn.

With positive tests at levels last seen last spring, deaths at record levels and the NHS close to being overwhelmed, the Health Minister has appealed to the public to adhere to the rules while a reluctance remains to tighten restrictions.

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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 Prime Minister, speaking at the Coronavirus press briefing yesterday, provided a bullish update on the progress of the Government’s vaccination programme concluding that things will look very different by the Spring.

The plan to vaccinate all four of the most vulnerable groups is being supported by the army’s logistics division and Johnson explained that the only limit to the rapid deployment of the vaccine is supply.

A report issued yesterday by a major European Bank concluded that the country’s GDP will take a less significant hit from the latest lockdown as business knows what to expect, has been able to prepare and the Government’s furlough scheme is well established.

The financial markets have no clear trend as we enter the second week of the New Year. With Brexit now complete, there has been some encouraging news from the Bank of England. Its Director for Financial Markets commented yesterday that, so far, the transition has been exceptionally smooth, and the UK intends to continue to provide robust regulatory standards on a par with the EU.

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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 spoke yesterday of his confidence that the country would thrive post-Brexit. He commented that he doesn’t see Brexit as a major drag on growth and the benefit of the certainty that deal brings outweighs any new regulation of trade.

He went on to say that he does not have any agenda regarding bank dividends having acted to restore the right of banks to pay dividends and last year's suspension was a one-off.

The pound is struggling to make any further progress against a weakening dollar as the country’s economy faces another recession with the length of the current lockdown remaining unclear.

It is estimated that the current lockdown measures are costing the economy close to £400 million a day. The economy faces the perfect definition of a double dip recession where two quarters of contraction are followed by a period of growth (in this case one quarter) followed by two further quarters of contraction."

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.