Sterling's gains were small in a day of slim trading, but the UK is now predicted to have shown a 9.8% annual contraction in GDP compared to the forecast 9.9%.

Bank of England Interest Rate hike?

Andy Haldane, Chief Economist at the Bank of England has been optimistic about the UK’s economic outlook comparing the potential recovery to that of a “coiled spring” although investors seem more cautious. Whilst the government’s inoculation programme has been excellent, there are concerns about the slow easing of lockdown measures and the impact on UK businesses and the workforce. The bank is counting on a huge boost in consumer spending as businesses reopen but with the possibility of tax hikes in the not to distant future and job uncertainty, this could limit consumer confidence.

As such, whilst the UK may appear to be significantly ahead in the vaccine race, the government’s ponderance over reducing lockdown measures is heaping further pressure on the economy.

 

As such, whilst the UK may appear to be significantly ahead in the vaccine race, the government’s ponderance over reducing lockdown measures is heaping further pressure on the economy.

In addition, the UK’s current account deficit has ballooned from a deficit of £13.8bn in Q3 2020 to a deficit of £22.8bn in Q4. On an annual basis, the deficit widened from £68.6bn in 2019 to £73.9bn in 2020. The current account deficit is a measure of a country’s balance of payments with the rest of the world with trade, primary income, and secondary income.

The Office for National Statistics has cited an increase in imports due to stockpiling in advance of Brexit and a lack of travel/transport services, which were restricted due to government policy. With the UK being a global net borrower, the pound is exposed to investor risk appetite as the pound is reliant on overseas flows to boost the value of the currency and in times of uncertainty can see sharp sell offs causing the currency to weaken.

Macron forced into U-turn as coronavirus numbers surge

French president Emmanuel Macron has abandoned his plans to keep France out of a third coronavirus lockdown announcing strict new month-long measures, which will involve the closure of schools for 3 weeks. Scientific advisors pleaded with Macron in January to shut down the country, but the French president refused, insisting his course of action was best.

Unfortunately, France has been unable to get a grip of the contagious British coronavirus variant and the president has been forced into a U-turn. In a televised update, Macron said “We will lose control if we do no move now”. People must work from home where possible and the 7pm curfew will remain in place. Travel will be restricted to 10km without good reason and non-essential shops will close. Travel between French regions will also be prohibited from April 5. Some regions already had these measures in place, but these will now take effect nationally.

Macron has been forced to act after daily coronavirus cases reached 40,000 and hospitals reported the lack of beds to deal with the number of admissions. However, Macron still sees his approach as a success (bizarrely but not surprisingly) as he noted the precious days of freedom that had been enjoyed as opposed to Germany and Italy that were in their fourth lockdown. Marine Le Pen has been fiercely critical of the president’s handling of the pandemic and has seen her support rise rapidly with a recent poll giving Macron a marginal 52/48 lead, sweeping away the two thirds majority he had at the last election. Marine Le Penn said, “The measures announced by Macron are the result of a vaccination Waterloo for which he does not take responsibility”.

Macron forced into U-turn as coronavirus numbers surge

France has administered 10.7m first jabs compared with the UK’s 30.9m, and whilst Macron remains confident in France’s vaccination programme, Macron and other EU leader’s political point scoring when bashing the UK’s AstraZeneca vaccine will make the inoculation roll out more difficult as growing numbers are refusing to accept the AstraZeneca jab and failing to show for appointments.

France is not alone in its coronavirus troubles, much of the Eurozone faces a similar battle although with a sizeable number of the over 80’s now vaccinated and summer months approaching, it is hoped case numbers can be brought down.

In time, this may provide some support for the euro, but this seems some weeks away.

 

Biden plans big overhaul of US economy as he promises to spend big

US president Joe Biden last night announced a $2 trillion stimulus package which will provide significant funds for investment in transportation, broadband and care workers. The package is the first part of a $4 trillion programme aimed at boosting the US economy. Biden confirmed the support would give the US an advantage in chips, biotech, energy and reduce the cost of internet services. Biden also said that anyone making below $400k would not be open to any Federal tax increase.

The president’s spending could increase inflation, which in turn could make Fed Chair Jerome Powell’s life uncomfortable as he resists calls for an early rate rise. Previously, Powell has said that he sees price rises as only temporary. The prospect of a higher tax bill could also impact investor’s risk appetite and may result in a fall in equity prices with investors seeking the safe-haven US dollar. So, for now, the US dollar remains strong and with uncertainty surrounding the UK, the pound to US dollar may struggle to move back above 1.40 in the short-term.

Unfortunately for the US, coronavirus cases are on the rise again, approaching daily case numbers of 70,000, which are way below January’s peak of 250,000 new cases per day but in line with last summer’s numbers. The seven-day average of coronavirus vaccine injections currently stands at 2.8 million although to increase this, many states are now looking at expanding eligibility.

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