UK lockdown exit roadmap to enter its latest phase
On the 10th May, Prime Minister Boris Johnson announced there would be further easing of Covid restrictions from the 17th of May 2021 and the path to normality will continue to run its course.
Covid restrictions in the UK will be eased and access to certain facilities and activities will resume i.e. indoor dining, cinemas, hotels and indoor child play areas, further supporting the UK's economic recovery.
The government has assisted through furlough schemes and grants for small businesses and individuals with the hope that this money will have been well spent and we could start to see an increase in inflation and potentially interest rates in the future. All of these factors should contribute to the strength of sterling.
The aim is to complete the Covid-19 vaccination program by this summer with everyone having received at least one jab by the end of August still very much the target.
So far in 2021 sterling has reached multi year highs breaking 1.40 against the US dollar and also touching 1.18 against the euro for a brief period. Following a drop in the last few weeks we have started to see the rate returning to those levels with Santander Bank predicting a move above 1.20 for the GBP/EUR in the coming months.
UK lockdown and economic recovery
Europe is currently in a lockdown and looking to reopen markets and business, this could however change the number of Covid cases to an extent which may effect inflation as the economy may go through a 4th wave of lockdown. Subsequently the government may be required to invest more money to support a living for individuals and small businesses. People may be required to isolate and stay home which may slow down the economy.
Europe is hoping to receive Covid vaccines in time to avoid an increase in number of cases and a 4th lockdown. Due to the continuing vaccine rollout there is hope that in the coming weeks we could see Europe ease lockdown. The vaccine rollout and easing of coronavirus restrictions should allow the EU’s economy to recover at a faster rate.
There is hope that some countries will begin to recover to previous levels in 2021 whilst others will hopefully recover by 2022, for example less developed countries such as Greece, Poland and some eastern European countries.
Reports suggest that the EU economy growth could be 3.7% in 2021 and 3.9% in 2022 after a drop of 6.3% following the start of the pandemic.
On another note, the EU is demanding AstraZeneca to deliver its Covid vaccines which were promised by end of March. Brussels said AstraZeneca could face financial penalties and legal proceedings if the vaccine is not delivered by June 2021 as promised. Delays in vaccine supply could lead the European Union to take the company to court. AstraZeneca did not only fail to supply the vaccine but also did not make any adequate arrangements to rearrange supply and delivery.
US inflation grows
There could be an increase in interest rates as US President Joe Biden set out his plans last month for more government spending on jobs, education and social care.
The majority of the United States is in a partial lockdown. Once the non essential shops start to reopen such as retail stores and entertainment facilities, the prices for products and service may increase to bring a balance in to the economy. For example price increase in certain industries may not generate as much revenue as expected because they may not be able to afford unnecessary expenditure.
The US economy grew 1.6 percent during first quarter due to the fact that individuals were vaccinated which controlled the number of cases. The US is currently facing shortages in everything from labour, packaging materials etc. This is because vast amounts of stock is delivered to the states from overseas countries.
Inflation hit 2.6% during March 2020 to March 2021, this may have a positive impact in growth of economy. Other economies have similar concerns but the central bank so far is taking business risk as a serious consideration to lower the risk of big loss. Many Americans were expecting the US economy to add 900k to 2 million new jobs but only 266k jobs were generated in April 2021. It is predicted that a lower job availability may result in the US taking longer than expected to recover.