GBP/CAD outlook and analysis of UK and Canadian economy in 2021

Even before the coronavirus crisis, the British pound to Canadian dollar (GBP/CAD) exchange rate has been volatile, mainly as a result of Brexit. During 2016, the British pound to Canadian dollar (GBP/CAD) currency pairing reached highs of CAD 1.90. As we begin Q2 of 2021, the British pound to Canadian dollar(GBP/CAD) exchange rate now stands at CAD 1.73.

Take a look as we cover the performance of each currency during the past year and the outlook for Q2 of 2021.

GBP-CAD Q1 Analysis and Guidance for Q2

The British pound to Canadian dollar (GBP/CAD) exchange rate hit a three-month low of 1.72 on 7th January, as the markets adjusted the UK’s third national lockdown and the extended economic damage caused by the coronavirus crisis.

Both the UK and Canada have had strong social distancing policies in place to help limit the spread of coronavirus and various measures to support businesses and those who have lost their jobs. But, despite the struggles experienced by both economies, both the UK and Canada are predicted to show strong recovery for Q2.

If you are looking to exchange Canadian Dollars (CAD) and British pounds (GBP), you can gain further guidance from your Halo Financial Currency Consultant.

Canadian coin - concept GBP-CAD quarter 2 forecast and analysis

How the Canadian economy is affecting GBP-CAD

Canada spends heavily to combat COVID-19

In common with other countries around the world, Canada has spent heavily to combat the effects of the Coronavirus during the past year. In total, measures worth more than CAD 100 billion have been agreed upon. Around half of this – CAD 52 billion – will go on the Canada Emergency Response Benefit. This provides CAD 2,000 a month for up to four months for workers who lose their income due to COVID-19, including those who are sick, quarantined, or taking care of someone with the virus.

A total of CAD 55 billion will go on deferred tax payments for business and individuals. In addition, CAD 2 billion will be spent on medical equipment and CAD 192 million on vaccine development. Businesses and charities who have seen income drop by 30% or more can get a wage subsidy of 75% to help keep workers earning up to CAD 58,000 on the payroll. Prime Minister, Justin Trudeau says:

“This is about making sure that people are still getting paid whether they work for a business that employs 10 people or 1,000 people.”

Bank of Canada weighs in with significant measures

The Bank of Canada (BoC) has also weighed in with significant financial measures since the beginning of the coronavirus pandemic. During March 2020, the central bank cut its benchmark rate by 50 basis points to 0.75% and then, in an unscheduled move on 27 March, it reduced the rate by another 50 basis points to 0.25% as well as increasing support for the financial markets. Following the reductions, the Canadian dollar (CAD) fell against the British pound (GBP). Governor, Stephen Poloz says:

“Low interest rates help to cushion the shock by easing the cost of borrowing. We are also working to keep the financial system functioning, helping make sure credit is available to people and companies. The intent of our decision today is two-fold: to immediately support the financial system so it keeps on providing credit, and, over the longer term, to lay the foundation for the economy’s return to normalcy.”

The bank began a Commercial Paper Purchase Program to provide short-term funding for businesses and is buying Government of Canada securities in the secondary market to ease strains in the debt market. “We will keep this program going until it’s clear the economic recovery is well underway.”

The economic measures by the government, provinces and bank are important when you consider the latest financial outlook and the fall in oil prices.

Bank of Canada

Canada one of the strongest economies in Q1

Both the Canadian economy and the British pound to Canadian dollar (GBP/CAD) exchange rate have faced a rollercoaster ride due to the major problems caused by COVID-19. However, economists note that Canada will prove to be one of the best performers for Q1 of 2021, with Canadian gross domestic product (GDP) rising by 0.7% in January, a 0.1% increase from Q4 of 2020.

Outlook for Canadian economy in Q2

With the Canadian economy outperforming the majority of its peers at the start of 2021, it seems likely that the upward trajectory will continue on into Q2. Royce Mendes, an economist at CIBC Capital Markets stated “an advance of more than 5% SAAR now looks likely. That would be roughly 2% faster than our last projection, and miles ahead of the contraction the Bank of Canada had pencilled into the January Monetary Policy Report.”

This week will see the release of Canada’s retail sales report as well as the release of manufacturing purchasing managers index (PMI) for March. Both sets of data are expected to show positive results, which will continue to add to Canada’s economic optimism.

How the UK economy is affecting GBP/CAD

UK GDP saw small growth at the end of 2020

Despite a difficult year, the UK economy experienced a small level of growth during the end of 2020, expanding 1.3% during Q4 despite a second national lockdown in November. On the whole, the UK economy contracted by 9.8% in 2020, which was the worst slump in 300 years. However, the impressive rollout of the UK’s vaccination programme, helped the British pound (GBP) become one of the best-performing currencies in January.

Outlook for UK economy in Q2

The Bank of England (BoE) recently forecast that the UK economy will recover more quickly than anticipated, seeing a sharp recovery during Q2 as non-essential businesses prepare to reopen. Bars, restaurants as services such as beauty salons re-opended 12th April and it’s expected that there will be a large jump in public spending as a result. The BoE previously likened the UK economy to a coiled-up spring, just waiting to be released once coronavirus restrictions are lifted.

How is the government supporting the UK economy?

Since the beginning of the coronavirus crisis, Mr Johnson was explicit in his language when saying the country was at war against COVID-19:

“We must act like any wartime government and do whatever it takes to support our economy. This enemy can be deadly, but it is also beatable. The coronavirus pandemic is a public health emergency. But it is also an economic emergency. We have never, in peacetime, faced an economic fight like this one. But we are well prepared. We will get through this.”

So far, the UK’s quantitative easing measures have reached GBP 895 billion, as Chancellor Rishi Sunak unveils further financial support during the Spring budget. Mr Sunak revealed that the UK’s furlough scheme would be extended until the end of September to help support struggling businesses. It was also confirmed that the stamp duty holiday would be extended until the end of June to help provide a boost to the UK property market.

What GBP-CAD buyers and sellers should watch for next

The predictions for the UK and Canadian economies during the rest of the year follow a similar pattern, both expected to see a rise during Q2, followed by continued progress later in the year. However, just how long the social distancing measures are in place, how much economies suffer and how quickly business recovers will largely determine how currencies will perform in 2021.

This uncertainty will continue to generate volatility in the currency markets and push the British pound (GBP) down or up against its major currency partners, depending on whether there is any new negative or positive news and data.

With so much at stake and an increased risk of currency fluctuations between GBP and CAD, keep in touch with your Halo Financial Currency Consultant to work out what it means for you and your international payments.

Pound Sterling (GBP) has suffered periods of losses throughout trading against the Canadian Dollar (CAD), due to negative economic data being released and fears over how the UK economy will cope during and after the current Coronavirus crisis.

As a result, both the Canadian Dollar and British Pound (GBP/CAD) remain vulnerable to international economic pressures and more movement is likely around the upcoming public holidays. Get in touch for the latest guidance.

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