A recent poll of 80 economists carried out by Reuters found a median prediction of the UK economy shrinking by 8.7% in 2020 with an expected growth of 5.5% in 2021. There was a consensus that the UK economy would not return to pre-virus levels until 2022-2023. These predictions account for both the best and worst-case scenarios.
The Bank of England (BoE) has supported the UK’s economy by increasing quantitative easing (QE) measures by £125bn, taking the total to £745bn over the past decade. There is thought to be potential for that level rising to just under £1trn by the end of the year, depending on how the recovery goes. Interestingly Andy Haldane the Chief Economist at the BoE voted against an increase in QE as he believed the UK was already growing at the beginning of June as the country re-opened for business.
From Sterling’s perspective, with Brexit negotiations a few days away from being within a six month deadline, the prospect of finding support looks bleak. There was a few murmurs of progress and the prospect of a top level deal becoming a reality in the last round of Brexit negotiations. An official timeline of the schedule produced at the start of the year aimed for the UK fisheries issue to be resolved by 1st July which was also the final date to agree an extension beyond 31st December.
Arguably at this point the negotiation surrounding British fishing waters seem far from resolved and the UK to this point have no intention of requesting an extension.
In the last month, sterling has ranged from 1.125 to the levels we’re currently seeing, in the low 1.10’s. If there was to be progress on the Brexit front then the pound could break out of those levels, alternatively any talk that a no-deal Brexit might be on the cards could encourage sterling to fall further.
The downturn across Europe following COVID-19 appears to have slowed down, as data for the past month comes to the forefront. The reopening of shops and businesses across the continent has unsurprisingly helped to create an uplift in output. There are however doubts that the recovery will be a V-shape in Europe which so many were hoping would be the case.
Several Purchasing Manager’s Indexes (PMI), which surveys executives across multiple industries, all pointed to the expectation for progress over the coming months. However, there is greater hope in the more distant, with concerns surrounding consumer behaviour in the immediate future still at the forefront of businesses’ minds.
The euro has received a welcome boost from the positivity surrounding the return of multiple industries, coupled with support from the European Central Bank helping to keep the economy afloat. The dropping of restrictions for UK tourists could also have a boost for the Eurozone as the holiday season looks set to go ahead with a 50% increase in the number of trips abroad being booked in the last few days from the UK. This will hopefully help some of the weakest economies in the south of Europe start to recover as money starts to poor back in from eager Brits.
Several states across the United States have reported that cases of COVID-19 are rising, and this is starting to show in the recovery of the economy. In America, PMI data showed that the economy was beginning to bounce back like much of the world with optimism starting to filter through. However, on Wednesday this week the US reported its largest number of new cases with California, Texas and Florida all reaching new day records, since the 25th of April. The recent reports of the rise in cases has triggered the EU to discuss the prospect of banning Americans from coming to the continent.
The US has a state by state policy when it comes to Lockdown and there is a real challenge to try and stop the population moving freely. Some states have even gone as far to ban people coming from the worst hit individual states across the country. Removing the virus from the US looks set to be a major challenge especially when the President is even holding 4000 person rallies despite a day high outbreak taking place.
Donald Trump’s Presidential campaign doesn’t look to be following the trajectory of the last one. Some polls show Joe Biden to be ahead of Trump by as much as 10-14 points in the polls. Most concerning for Trump is 65 voters are backing Biden, with that demographic thought to be the reason for Trump’s previous victory.
The US dollar could well begin to come under pressure if the prospect of Biden winning becomes a reality. President Trump has helped boost the US economy with policies to promote busines and cut tax. A Democratic President would not continue with several of these polices and the markets understand could be the case.
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