UK Economy Set for Very Rapid Growth Say Bank of England
The Bank of England (BoE) Deputy Governor, Ben Broadbent, has stated that Britain’s economy will experience ‘very rapid’ growth over the coming quarters due to the easing of UK lockdown restrictions and rollout of COVID vaccines.
With the UK saving around GBP 17.5 billion over the course of the coronavirus pandemic, it’s thought that British consumers will spend in excess of 5% of their lockdown savings. Mr Broadbent confirmed that he remained optimistic for the UK’s economic recovery, with the Bank indicating the possibility of a roaring twenties style comeback, whilst also highlighting that long-term prospects remain uncertain.
Following the release of strong UK purchasing managers index (PMI) data last week, IHS Markit has also forecast that April will see the UK’s private sector experience its fastest growth rates in seven years. The forecast is supported by figures from the Office for National Statistics (ONS) which revealed that UK economic recovery began in March, with a sharp rise in consumer spending as the nation prepared for the reopening of UK non-essential retail on 12th April.
UK retail sales during March, according to the ONS, rose by 5.4% despite the closure of the UK high street, with demand fuelled by clothing and gardening related purchases. Sales of mobility equipment also saw a sharp rise during this period, with older UK citizens preparing to venture out following their COVID vaccinations. This trend is in keeping with previous comments from BoE Chief Economist Andy Haldane that the UK economy is a coiled spring waiting to be released.
Meanwhile, The Confederation of British Industry (CBI) recently discovered that confidence within the UK manufacturing industry is now at its highest rate since 1973. The abundance of positive economic data has led to the widespread view amongst economists that the UK economy will see its most substantial growth levels since 1988.
ING economist, James Smith, stated that these positive movements are all signs that the harsh UK economic winter is finally thawing. Economists believe that the UK economy could see 5.7% growth in 2021, whilst JP Morgan and Oxford Economics forecast that up to 7% could be possible this year, which would be the most robust post-war era economic growth.
EU fear that UK/US economic recovery will fuel Euroscepticism
As the UK and US embark on the journey of economic recovery, an expert in European Affairs is concerned that their improved outlook could ignite a Eurosceptic surge. Professor Grant Amyot stated confidence in the EU could collapse if the sizable stimulus measures implemented by the European Central Bank (ECB) fail to make a positive impact on EU member states.
The Eurozone is currently experiencing a third wave of coronavirus cases and has been slow to respond to coronavirus vaccination measures. As a result, the EU is now playing catch up to the rapid efforts of the UK and US. Professor Amyot contended that EU citizens could be discontented and even revolt if they sense their lives have not been improved by the financial measures put in place by the European Union.
However, Professor Amyot also stated that it was unlikely that we would see a repeat of the events during the Eurozone crisis amid the 2008 financial crash. With the ECB increasing purchases through their government bond-buying scheme, he stated that it was doubtful that there would be another debt crisis, with the ECB prepared to step in to avoid such matters.
The British pound (GBP) is continuing its struggle to extend gains against the euro (EUR) this week, though the currency pairing is expected to experience an imminent swift recovery.
British pound to euro likely to see a swift recovery
Whilst the British pound to euro (GBP/EUR) exchange rate has slipped at the start of the new trading week; economists believe the currency pair is on course to soon see a rapid reclamation. The British pound to euro (GBP/EUR) exchange rate has opened the new trading week at EUR 1.1501, with the gap likely to close over the coming days.
Pound Sterling (GBP) failed to capitalise on the release of robust UK PMI data last week, though the progress has endorsed a strong recovery narrative, says ING strategist Francesco Pesole. With a quiet economic calendar this week for the UK and EU, it’s thought that the British pound (GBP) could experience a renewed ascent against the euro (EUR), with the potential to edge towards the EUR 1.18 level experienced in recent weeks.
This week’s most notable European data was the release of this morning’s IFO Business Climate Index for Germany, which showed that business confidence rose marginally from 96.6 in March to 96.8 in April. The lack of growth is largely down to the third wave of coronavirus cases which have weighed on business sentiment, hindering Germany’s economic recovery.
Elias Haddad, foreign exchange (FX) strategist at Commonwealth Bank of Australia (CBA), predicts there is plenty of room for the euro (EUR) to fall against the British pound (GBP) this week, with the single currency remaining highly overvalued. CBA forecast that the British pound to euro (GBP/EUR) exchange rate could rise to EUR 1.25 over the coming months due to the reopening of UK businesses and opening of the economy whilst many EU member states are still subject to tight coronavirus lockdown restrictions.
With the UK economic outlook becoming increasingly optimistic, it’s forecast that the British pound (GBP) will also see rebound growth against the US dollar (USD).
British pound to US dollar to break above USD 1.40
After weeks of hovering around the USD 1.39 level, economists predict that the British pound to US dollar (GBP/USD) exchange rate will break above and maintain the USD 1.40 over the coming days.
Whilst the currency pairing hit the USD 1.40-mark last Tuesday, Cable failed to sustain the progress due to deteriorating market sentiment. However, the British pound to US dollar (GBP/USD) exchange rate has edged slightly higher at the start of the new trading week, climbing 0.23% higher to 1.3909.
The US dollar (USD) benefitted from the release of last week’s US jobless claims, which showed a surprise drop, reaching the lowest levels so far during the coronavirus pandemic. However, the Greenback was soon set back by US President Joe Biden’s proposals of a hike in capital gains tax.
This week will see the release of the latest US gross domestic product (GDP) data, with signs of accelerated growth having the potential to push the US dollar (USD) higher. However, dovishness from the Federal Reserve during this week’s monetary policy meeting could cause the Greenback to deteriorate.
This week’s lack of significant UK data should also allow for fresh impetus in the British pound to US dollar (GBP/USD) exchange rate, along with the decline in UK coronavirus infections.