UK business confidence rises but Lloyds closes bank branches
- UK business confidence soars to its highest level since March 2018
- Lloyds Bank announces the closure of 44 branches across Britain
- British pound to euro (GBP/EUR) exchange rate slips from monthly highs
- 2021 FX Outlook: US dollar to return to 2016 levels
According to the latest findings in a Recruitment & Employment Confederation (REC) survey, UK business confidence has soared to its highest levels since 2016.
REC noted that the UK economy had turned positive for the first time in over three years due to growing confidence over the economic outlook, supported by the relaxation of COVID-19 restrictions and people enjoying greater freedoms.
The REC’s latest Jobs Outlook survey was based on data from 600 employers, conducted between March 8th and May 28th.
According to REC, business confidence jumped by 21% to +11 in Q1 2021 – the first positive reading since 2018 and the highest level since the outcome of the Brexit referendum.
REC said confidence was driven by renewed optimism towards hiring and investment, which rose to +29 – the highest level since March 2016.
REC Chief Executive Neil Carberry described the surge in business confidence in the UK’s economic prospects as “remarkable”, highlighting the 61% jump quarter-on-quarter.
However, he noted a significant skills shortage across the UK economy, which has been made worse by the coronavirus pandemic .
Mr Carberry warned that the skilled labour shortage could slow down economic recovery if not addressed urgently.
He went on to say that the UK government needs to provide “better access to training and support for staff wanting to change sectors.”
His comments come after recent economic indicators signalled a slowdown in the UK economy’s recovery, with inflationary pressures adding to concerns over economic growth.
Although the Bank of England (BoE) is confident that the UK’s gross domestic product (GDP) will return to pre-pandemic levels by 2021-end, inflationary pressures are gathering pace, which could encourage the central bank to take unfavourable action.
IHS Markit/CIPS survey published on Wednesday revealed that inflation pressures had hit record levels in June, with growth in the private sector cooling only slightly from May’s unprecedented high.
According to IHS Markit/CIPS, the latest UK Composite PMI – which came in at 61.7 – has signalled one of the most prominent monthly improvements in business activity since the series began over two decades ago.
Consumers have also been hit with considerably higher food and hospitality prices this month, increasing the threat of inflation surging.
Lloyds Bank has also announced the closure of 44 of its branches across England and Wales this year, despite the loosening of COVID restrictions pointing towards robust economic growth in the country.
Lloyds Bank and Halifax receive backlash for closing bank branches
Lloyds Banking Group made a formal announcement, stating that it would permanently close 44 bank branches this year – 29 in the Lloyds Bank subdivision and 15 Halifax sites.
The latest move means the retail bank will have closed a total of 100 branches during 2021, with Lloyds blaming the massive shift to online as the reason for closures.
The Banking Group faces significant backlash from Unite union, which criticised the bank for irresponsibly withdrawing from local communities.
Unite’s regional officer, Caren Evans described the move as “baffling”, warning that it will “further erode the bank’s presence within our communities.”
Ms Evans added: “Lloyds Banking Group denies local communities of essential services such as access to large cash withdrawals and consultancy. Local ATMs cannot replace experienced and highly trained staff.”
Lloyds Banking Group Retail Director Vim Maru said they decided to close additional branches due to the number of reduced transactions these branches have experienced over the last five years.
According to Mr Maru, digital banking has become even more popular since the coronavirus struck, with some 18 million users now using online banking compared to 4 million five years ago.
When explaining the Banking Group’s decision to close 44 branches, the Retail Director said: “Like many businesses on the high street, we must change for the future and use sites that are visited less often differently.
“Our customers will continue to be given a choice how they bank with branches that are being kept open, telephone, online and mobile banking. We are also going to continue with our video appointment services as we emerge from the pandemic, our participation in the industry BankHUB cash initiative and offering services at 11,500 Post Offices to allow our customers to bank and access cash.”
By 2022, the group will have 779 Lloyds Bank branches, 560 Halifax sites and 184 Bank of Scotland divisions.
Unite also confirmed that most employees have not been made redundant by the group but redeployed to other branches.
The news did little to impact pound Sterling (GBP) exchange rates, which have been influenced by UK PMI data and EU-UK trade fears abating on Wednesday.
Pound Sterling (GBP) clinging onto gains
Pound Sterling (GBP) rallied in early mid-week trade, supported by headlines showing that tensions between the UK and the European Union over Northern Ireland protocol subsided.
The British pound to euro (GBP/EUR) exchange rate surged to EUR 1.1722 in the wake of the news – its best levels since April 5th.
However, the GBP/EUR currency pair came under pressure after Eurozone’s latest PMI releases beat estimates, with the bloc’s Services PMI printing at 58, ahead of the expected 57.8.
Meanwhile, IHS Markit revealed that Eurozone Manufacturing PMI held at 63.1 versus preliminary estimates for a slump to 62.1.
The data renewed hopes of a stronger than expected economic rebound in the Eurozone and lifted the euro (EUR) from two-month lows against pound Sterling (GBP).
Although the British economy is forecast to undergo solid growth in 2021, investors were left slightly disappointed by today’s release of flash UK Services PMI data which fell from 62.9 to 61.7 for June.
While the reading shows that the services sector remains firmly in expansion territory, the slightly damp end to Q2 2021 undermined GBP sentiment across the board.
At the time of writing, the British pound to euro (GBP/EUR) currency pair is trading flat at EUR 1.1692 and could remain volatile for the remainder of Wednesday’s trading session.
However, tomorrow’s Bank of England (BoE) interest rate decision could see GBP reverse its fortunes and reclaim losses against the euro (EUR) and other major trading rivals such as the US dollar (USD).
Although BoE policymakers aren’t expected to make any monetary policy changes if they signal a tapering of policy measures and deliver a hawkish outlook of the UK economy, this would prove pound-positive.
While the single currency stands to benefit from tomorrow’s publication of German IFO business sentiment data, a hawkish statement from the BoE will more than likely overshadow this release.
Retail banking company BNP Paribas is also confident that the British pound (GBP) will outperform currency peers this year due to UK growth prospects.
Pound Sterling FX outlook: GBP long-term outlook positive
According to BNP Paribas, robust UK economic growth will allow the BoE to raise interest rates in summer next year, ahead of other central banks, including the European Central Bank (ECB).
The ECB isn’t expected to perform an interest rate hike until 2024, so the move wouldn’t certainly put a floor under the British pound to euro (GBP/EUR) exchange rate.
In a strategy note to clients, the French international banking group wrote: “Our view is based on GBP’s long-term valuation forecast, and expectations that the Monetary Policy Committee (MPC) will tighten monetary policy faster than the market is pricing.”
There’s no doubt that 2021 is the year that foreign exchange (FX) markets will get back on track, with market analysts at ING Bank predicting a broad decline in US dollar (USD) exchange rates this year as the global economy stabilises.
Although last week’s Federal Open Market Committee (FOMC) meeting triggered a massive rally in US dollar (USD) exchange rates, ING Bank expects the greenback to decline by 5-10% against most trading rivals in 2021.
Analysts cited the strengthening commodity complex as the reason for broad-based declines in the US currency, with risk-on counterparts such as the Canadian dollar (CAD), British pound (GBP) and Australian dollar (AUD) already boasting solid gains against the greenback.
The outlook for GBP/USD is positive courtesy of Britain’s rapid vaccine rollout, hawkish central bank and the UK-EU Brexit deal.
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