British pound sheds post-Brexit gains amid new lockdown
- British pound (GBP) slides against the Australian dollar (AUD), New Zealand dollar (NZD), the euro (EUR) and other major currencies after UK lockdown announcement
- Rishi Sunak unveils GBP 4BN support package for UK businesses
- Chancellor extends government support scheme for SMEs
The British pound (GBP) has depreciated against a host of major currencies on Tuesday, including the euro (EUR), US dollar (USD), riskier Australian dollar (AUD), New Zealand dollar and Norwegian krone (NOK).
After climbing higher in the wake of the UK and the EU securing a post-Brexit trade deal, pound Sterling (GBP) is unravelling following the UK’s Prime Minister Boris Johnson’s announcement of a third national lockdown as COVID-19 continues to spread like wildfire across the country.
Financial markets are also airing concerns over the possibility of another interest rate cut from the Bank of England (BoE) due to the impact tighter restrictions will have on the economy, increasing downside pressure on the British pound (GBP).
While pound Sterling (GBP) has made tentative gains against the US dollar (USD) heading into the North American trading session, upside in the GBP/USD cross could be cut short as analysts from Credit Agricole signal a recovery in the “oversold” greenback.
Besides the US dollar (USD), the British pound (GBP) is trading lower against all its G10 rivals on Tuesday, including the Swedish krona (SEK) and Japanese yen (JPY) as foreign exchange (FX) markets grow increasingly cautious over the UK’s economic outlook.
British pound near-term outlook turns sour as economy shuts down
According to a poll of leading economists, it could take the UK economy a minimum of 18 months to return to its pre-pandemic size and recovery in the country is expected to lag behind its peer economies.
Several FX analysts are also forecasting further near-term pain for GBP exchange rates, with economic growth for Q1 expected to decline due to more stringent COVID-19 measures.
The lockdown announcement came after public health officials recorded 58,784 new COVID-19 infections – the highest daily total since the pandemic rattled Britain in March.
Although the UK has rolled out the Oxford/AstraZeneca’s vaccine, which poses logistical advantages to Pfizer’s jab, the record-breaking increase in daily infections has hit pound Sterling (GBP) hard and directed attention away from the UK-EU Brexit breakthrough.
After soaring to EUR 1.1271 earlier this month, the British pound to euro (GBP/EUR) exchange rate is stuck in a sideways range at the EUR 1.10 level. Meanwhile, pound Sterling (GBP) has slumped by more than 0.5% against the Australian and New Zealand dollars at AUD 1.757 and NZD1.8805, respectively.
England’s national coronavirus lockdown is expected to end on February 19th, albeit ministers have said they will extend restrictions if the virus remains a threat to public health.
Today, Chancellor Rishi Sunak unveiled a 4BN support package for businesses on top of a range of existing government support schemes to provide firms with a lifeline in what is bound to be another challenging financial period.
Rishi Sunak offers UK businesses 4BN in support grants
With the UK government tightening restrictions, the Treasury has taken swift action to protect businesses and livelihoods with another coronavirus aid package.
Chancellor Rishi Sunak said the new support grants would provide UK businesses with certainty and help them “get through the months ahead.”
The new COVID-19 business support package includes:
- One-off grants for retail, hospitality and leisure companies worth up to GBP 9,000
- A further GBP 594 million discretionary fund to support other businesses affected by the lockdown on top of GBP 1.1 billion in discretionary funding being made available to local authorities
- An extension to the furlough scheme and 100% government-backed loans
Meanwhile, the self-employed can apply for the third round of Self-Employment Income Support Scheme (SEISS) grant payments until January 29th 2021 and look forward to the fourth payment between February and April.
According to the Chancellor, approximately 95% of self-employed workers will benefit from the SEISS grant, which covers 80% of average monthly profits capped at GBP 7,500.
However, given that the UK has entered a third national lockdown, Rishi Sunak may increase the bracket on the SEISS grant or introduce additional aid for self-employed workers.
The Treasury also recently announced a new support scheme for small and medium-sized enterprises (SMEs), with eligible firms able to access up to GBP 10 million in the form of loans.
Rishi Sunak extends support for SMEs
Last month, Chancellor Rishi Sunak unveiled a new state-backed guarantee for SMEs, which will pump funding into banks to stimulate lending to small and medium-sized businesses.
The plan, which launched in January offers SMEs loans worth up to GBP 10 million per firm with a six-year lending period to help these companies weather the economic storm caused by COVID-19.
Chancellor Rishi Sunak said the new support scheme is an extension of the GBP 65 billion Coronavirus Business Interruption Loan Scheme (CBILS) which has also been extended until March 31st 2021.
Although UK banks will set the interest rate on these new loans, rates will likely be capped at 15%. While this may not be a long-term solution to the growing financial problem, SMEs should find the new loan scheme beneficial given the dire situation, many small and medium-sized firms face.
It is also believed that the new support scheme will support SMEs with their overdrafts and asset finance facilities.