New strain of COVID-19 wreaks havoc on UK economy; GBP is recovering; Great Britain’s economic data remains unchanged.
The governor of the Bank of England, Andrew Bailey, recently said that the latest increase in the number of infected with COVID-19 has brought the British economy to ruin, delaying the country’s recovery.
“at the moment in a very difficult period and there is no doubt that it will delay, probably, the trajectory,” he said during the online speech, adding that he expects unemployment to be above the current 4.9%, to 6.5%.
As for the possibility of setting interest rates below zero, he said such a move could harm the banking system, as it would complicate banks’ efforts to earn a rate of return and hurt lending to other companies.
Bailey expects economic activity to be subdued until vaccines are widespread enough to justify lifting some restrictions.
The coronavirus crisis continues to escalate in England due to the spread of the new strain of COVID-19. So far, since the beginning of the pandemic, 3,118,518 cases of the corona virus and a total of 81,960 deaths have been reported, making Great Britain the fifth most affected country in the world. The new strain is said to be more contagious, although vaccines still appear to be effective against it. To prevent its spread, the UK government decided to introduce a national lockdown until the end of March.
According to England’s chief medical officer Chris Whitty, the country is entering the most challenging phase of the pandemic as hospitals are overwhelmed and bodies are piling up.
“We are now at the worst point of this epidemic for the UK. We will have a vaccine in the future, but the numbers are higher at the moment than they were at the previous peak – by some distance,” Whitty said.
The UK is expected to reach its target of vaccinating 13 million people by mid-February.
Economic calendar
Markets learned this week that like-for-like retail sales rose less than expected to 4.8% in December (on an annual basis), compared to November’s 7.9%. Analysts expected it to be 7.9%. This is the worst annual change in 25 years.
“Physical non-food stores, including all non-essential retail, saw sales fall by a quarter on 2019,” said the chief executive of the British Retail Consortium. during peak trading periods.”
Pound Recovers
So far this week, the pound has gained 0.24% against the US dollar, recovering from the previous week’s losses and regaining ground lost earlier in the week.
The pound’s early week losses were attributed to expectations of negative cash rates, just after Monetary Policy Committee member Silvana Tenreyro said further cuts would continue to provide economic stimulus.
“GBP will have to brace for another wave of negative rate headlines,” said an analyst at ING. “GBP will be vulnerable to negative rate talk during the lockout and EUR/GBP risks 0.91.”
The bank is currently split on the feasibility of imposing negative cash rates, although Tenreyro said at this point the conclusion of such a debate seems obvious.
“Once the Bank is satisfied that negative rates are feasible, the MPC will face a separate decision on whether they are the optimal means of achieving the inflation target in the circumstances at that time,” she said.
The general weakness of the pound since the beginning of the year is related to the current situation with the coronavirus. As we have already mentioned, the country is now facing its worst moment since the beginning of the pandemic and has yet to begin the mass introduction of the vaccine.
UK economic data unchanged
Since our last report, the main economic indicators have remained unchanged.
November’s inflation figures were well below the Bank of England’s inflation target, which currently stands at 2 percent. The consumer price index was below expectations, falling by 0.3% on an annual basis, after an increase of 0.7% in the previous period. On a monthly basis, it fell 0.1 percent, also in line with projections, and below the previous month’s figure.
Gross domestic product increased by 16.0% in the third quarter, above expectations of 15.5%. Unemployment figures show a labor market improvement of 4.9%, also compared to expectations of 5.1%, after being at 4.8% in the previous period.
Upcoming events
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The State Bureau of Statistics will publish data on industrial and manufacturing production on Friday.
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Also on Friday, data on the gross domestic product will be published.
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Data on the trade balance will also be published on Friday.