Sterling struggled against the US Dollar and Euro yesterday afternoon falling over 1% against both currencies. The drop can be attributed to Bank of England Chief Economist Andy Haldane who poured water on Chancellor Rishi Sunak last week statement that said he expected an economic bounce back following Coronavirus. Haldane suggested that the UK economy could well struggle for some time and that consumers may be reluctant to return to normal spending habits following the lockdown.
There had also been suggestions of how the UK economy could be restarted, business groups have pointed to a decrease in property purchase taxes to help encourage action. Whilst economists at Citi Group have suggested a cut to social security contributions could also help to encourage spending. There is clearly major concern that despite the furloughing and deferred payments people are going to be in a difficult position before the end of the first half of the year and an immediate recovery may be some way off.
The UK Government also appear to be at odds with each other over how best to remove the country from lockdown. Whilst there is still two weeks of lockdown following the extension the government don’t want to start encouraging people to prepare for a exit. All of the good work that has been done in controlling the virus is under real threat of being undone according to ministers. Boris Johnson is thought to be back in charge and is very conscious of how the best way will be for the UK to move out of this situation.
Spanish and Polish politicians have called for 100’s of billions of Euros to spent on fixing the European economy in the near future. Massively surpassing the already agreed €500bn of funding secured two weeks ago. The Polish Prime Minister alluded to the return of manufacturing in Europe bringing jobs back to the continent that have “emigrated” to Southeast Asia in the last few years.
Spain’s Deputy Prime Minister challenged in a statement that the wealthier European economies should not be able to achieve a unfair competitive advantage. Nadia Calvino suggested that there should be grants and not loans provided as bailout stimulus in order to protect the functioning of the internal market. By burdening the poorer economies with loans the debt to GDP ratio will worsen meaning the likes of Spain cannot offer equal stimulus packages to business as Germany for example.
The whole concept of fair is going to be a challenge for the EU as clearly the richer nations are paying more of the bill. The Norther countries are reluctant to offer grants to the southern nations as they believe they should pay back the bailout money trough loans. The internal fighting may start to have an effect on the Euro over the coming months, as strains start to form between countries. For as long as the weaker economies want more and the stronger economies want to pay less, there is always a chance for trouble.
A Reuters Poll taken between the 15-20th April found that just under half the respondents believe the US economy outlook would be a “U shape” on a graph. This would mean there isn’t going to be a bounce back for some time suggesting the outlook is particularly poor. This poll was also taken before the value oil for futures fell below zero, which may suggest the results might even be worse if taken this week. There was hope that much like the UK Chancellors optimism there would be an immediate bounce back but that looks less likely with talk of a US recession on the cards.
Donald Trump took the extreme measure of announcing a ban on immigration in the past days pointing out that this would help the huge numbers of current unemployed Americans find a job. The US Dollar as usual however in times of uncertainty found itself strengthening and against Sterling the mid 1.22’s was tested again. This means that 4 cent the US Dollar had lost in the last 15 days of April has now all be regained against Sterling. It was also reported yesterday that Boris Johnson and Donald Trump were in contact so the Prime Minister is clearly well on his way to recovering from the virus, however this news has not provided any strength to Sterling.
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