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COVID-19 improvements may shorten the UK economy’s recovery

According to Public Health England and the University of Cambridge’s MRC Biostatistics Unit, the rate of daily coronavirus infections in the UK appears to be slowing.

The UK currently has over 3.7 million confirmed coronavirus cases, but recent data shows that the number of daily infections and deaths falls significantly each day. As of 8th February 2021, new daily cases are down to 14.104 from 68,053 on 8th January 2021.

When UK Prime Minister Boris Johnson imposed the nationwide lockdown, London saw over 200,000 new coronavirus cases per day. According to the latest research, new coronavirus cases in London as of 8th February 2021 were 1,770.

Boris Johnson stated that the R-value, which gauges the contagion of the virus, must stay below 1 to prevent a relapse in the number of positive cases.

If the R-value is 1, that means every one person with the disease will transmit the infection to one other person. If R-rate falls below 1, the virus is less infectious as it is unable to spread to enough people to sustain an outbreak.

Recent data shows that the R-rate in London is between 0.6 – 0.8 and across England is 0.7 – 0.9.

10 Downing St

In a Downing Street press briefing, Mr Johnson declared that the R must stay below 1 for the continued easing of lockdown measures in the UK.

With the current R-rate below 1 across England and the number of cases in London fast declining, Boris Johnson may ramp up the easing of lockdown restrictions over the coming months. If that be the case, this will provide meaningful impetus to the UK economy by increasing market activity and shortening the path to recovery.

Health Secretary Matt Hancock previously stated that the government was exploring the possibility of re-introducing regional easing measures from March.

However, the new COVID-19 variants also remain a concern for the UK, with it currently uncertain as to how effective vaccines will be at combating new strains. That being said, Professor Jonathan Van-Tam does not believe that the South African variant will dominate the UK.

Against this backdrop of optimism, the British pound (GBP) will likely receive market support and begin to reclaim its losses against the currencies of its major trading partners.

The British pound (GBP) has been supported by the UK’s impressive vaccination rollouts, as it’s hoped that this will provide support for the easing of lockdown measures.

The British pound to US dollar (GBP/USD) exchange rate has edged higher today at USD 1.38, finally breaking above the USD 1.37 resistance level.

The British pound to euro (GBP/EUR) exchange rate has also seen an increase, trading at EUR 1.14, benefitting from vaccine progressions and the Bank of England’s (BoE) decision to leave interest rates untouched.

However, evidence that the R-rate in the UK is declining should provide the British pound (GBP) with relief. The UK stock market has already shown signs of recovery after turning bearish earlier this week, and the British pound (GBP) tends to react well to improved sentiment.

Australian Dollars

British pound to Australian dollar rangebound

The British pound (GBP) has slipped against the Australian dollar (AUD), with the currency pairing currently trading at AUD 1.79. The Australian dollar (AUD) appears to be benefiting from positive Australian Business Confidence data, with the forecast increased by 10 points during January.

Alan Oster, NAB Group Chief Economist, stated ‘business started the year on a more optimistic note, even as conditions eased from the strength we saw in December. Importantly, employment conditions remain in positive territory – so overall businesses are still expanding their workforce.’

The Australian economy does not appear to have seen much movement as a result of vaccine developments as has been the case for the UK and US. For some time, Australia’s coronavirus cases have been extremely low, similar to New Zealand, with only 3 new cases recorded yesterday.

New Zealand dollar currency (2)

British pound forecast to rise against New Zealand dollar

Whilst the British pound (GBP) has also slipped against the New Zealand dollar (NZD) today, economists forecast that the ‘Kiwi’ currency could weaken over the next two weeks.

Investors are due to remain cautious ahead of the Reserve Bank of New Zealand’s (RBNZ) policy meeting, scheduled for 24th February. January saw British pound to New Zealand dollar (GBP/NZD) exchange rate reach a high of NZD 1.92

Ashish Agrawal at Barclays commented that “the New Zealand dollar (NZD) has likely overshot after it rallied 5% since the November Monetary Policy Committee (MPC) on improving domestic data and higher rates in New Zealand.”

Any vulnerability experienced in the New Zealand dollar (NZD) could help bolster the British Pound (GBP) to recommence the short-term recovery experienced at the start of 2021.

The British pound (GPB) has been recently buoyed by comments from the BoE that the UK economy will experience a sharp recovery this year in addition to indications that negative interest rates will be avoided.

That being said, the road to UK economic recovery is set to be long and uncertain. New Zealand, who lifted all coronavirus restrictions last year, have still yet to experience restaurant and hotel spending return to pre-pandemic levels.

Whilst the UK’s gross domestic product (GDP) for Q1 is thought to contract by 4.2%, the BoE predict that significant growth will be seen during the Spring, during which time lockdown restrictions are set to ease.

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