10 Aug 2020
There has been some renewed dollar weakness, the catalyst being how the pound fired up a little bit, and mostly due to last Friday’s ’ BOE interest rate decision that created a little bit of upside movement in sterling currency.
This comes after being buoyed by the comment about a V-shaped recovery by chief economist and the Executive Director of Monetary Analysis and Statistics, Andy Haldane a couple of weeks ago – a comment that was also backed up by the manufacturing sector. And if you were to go by the UK’s data released which supported his view, you’d have thought he was possibly on to something.
What a difference a week makes!
Right now, sterling is indeed supported against the weaker dollar, and yes, the data continues to show recovery of sorts, however now we seemingly have a ‘second spike’ looming and the UK government’s ability to support its economy especially if they need to go into another lockdown, is being seriously questioned.
The UK economy is expected to shrink by 9.5 per cent as a result of the pandemic, BOE warns. Making this the biggest annual decline in a century. However, it’s said the impact will be less severe than the initial forecast of 14 per cent. BOE further added, that the recovery had been "earlier and more rapid" than it had assumed in May, reflecting an earlier-than-expected easing of lockdown restrictions. However, the numbers on furlough are worryingly high and forecasts for GDP recovery are getting longer and longer along with the resources for any additional support which seem to be drying up.
The opinion is, that Governor Andrew Bailey is likely to stop short of taking the interest rates below zero, and the opinion is mixed. Is it likely to have any great effect on how the economy performs for the rest of the year? For the man on the street, arguably it’s more important to get out and about. Sunak’s, ‘Eat out, to help out’ scheme looks like it’s on the right track, at least it looks that way now, but what if the UK has to cut back yet again to deal with the possibility of a second spike? We’ll have to wait and see.
The MPC (Monetary Policy Committee) has said it will continue to review the appropriateness of a negative policy rate as a policy tool alongside its broader toolkit. Its central projection forecasts that GDP will continue to recover in the near-term but is not expected to exceed its levels from the end of 2019 right through to the end of 2021 at the very least.