The UK pound has suffered these past few years and took a massive slump after the Brexit deal was sealed. But luckily, things are looking positive for the pound as it keeps on edging up against the euro in the market. There are a lot of economic reasons as to why that could be.
Investors and the public were in no doubt impressed with the fast vaccine rollout in the United Kingdom, with more than 7 million shots already administered in just two months, and its potential release of the domestic economy from lockdowns could be seismic. It is no surprise that the EU is troubled by its vaccine performance that is not par with that of the UK.
There is still a long way to go for the United Kingdom, though, and its decision to space out its doses is still untested, but this was not how things were meant to turn out after the Brexit deal was signed, especially in Europe’s perspective.
As seen in the media, the UK is coming from a darker place than its neighboring countries, both in the number of deaths due to the COVID-19 pandemic and the economy. The UK had stumbled into a bottomless hole during the first wave of the pandemic last year when the result was hammered, and the retail sales fell so hard in most industrialized nations.
UK’s gross domestic product fell almost 10% in 2020. However, the scope for bouncing back is still considerable, even if the UK’s borders were shut to slow down the spread of the coronavirus.
Tipping Point
The UK pound has recorded a 0.8850 level several times in the past few weeks versus the euro. The flip side of 2020’s consumer retrenchment is around 150 billion pounds or $206 billion of household savings that are not moving. If given a chance, the British consumer could bounce back.
Analysts from Deutsche Bank AG thinks that ongoing travel restrictions could help make another domestic tourism boom. The third quarter of 2020 saw a sporadic event in its long-entrenched current account deficit in tourism. This means that UK travelers spend more time abroad than foreigners spend on trips to the UK, which turned positive.
The only practical option for holidaymakers is a staycation offer, as it can help boost the domestic economy and the current account balance.
There is another 150 billion pound fund sitting at the Bank of England that is on hold and would be used to deploy on more emergency government bond-buying. More fiscal spending has also been scheduled by the Chancellor of the Exchequer Rishi Sunak, including extensions to pandemic support plans.
Because of the national lockdown that is still happening, the parliament must not be carried away. With a dip to 38.8, which is well below the 50 growth line, the services sector purchasing-managers survey in January 2021 still looks bleak.
However, Dan Hanson of Bloomberg Economics expects a first-quarter GDP drop of 4.5% to be more than reversed by a 6% gain around mid-2021. This could be revised higher if the vaccine distribution pace is maintained or hastened, and the regime of having single-dose, thus allowing the domestic economy to continue.