GDP figures do little to hurt the Pound
Let’s start with the doom and gloom figures before finishing off on a positive note ahead of the weekend. Today the UK released GDP data which confirms the economy shrank by 9.9% in 2020. This is the worst recording in 300 years (the great frost in 1709) and more than twice the fall during the 2008 financial crisis. The UK’s output was down 7.8% from the final quarter of 2019, this is twice the decline of Germany and three times the drop in the US. This is why forecasts were for the Pound to struggle in Q1, as data-houses knew what was coming.
However, the figures released today are much better than expected. QoQ beat estimates comfortably and shows the UK economy performed admirably towards the end of last year, despite the fact that there was a one-month lockdown observed during November. This is some added good news for the Q1 outlook considering the even tighter restrictions now. Online retail sales recorded five years of growth in just 12 months as the coronavirus pandemic accelerated the shift to digital shopping. E-commerce sales accounted for 19% of retail spending in 2019 compared to 28% in 2020 after restrictions and lockdowns forced consumer spending online and away from physical stores.
I’ll finish today’s article with a piece written by chief economist of the Bank of England, Andy Haldane, who wrote in the Daily Mail today..
"The rapid rollout of the vaccination programme across the UK means a decisive corner has been turned in the battle against Covid. A decisive corner is about to be turned for the economy too, with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring."
Haldane said a combination of desperation to catch up on missed socialising and record household savings meant the reopening of the economy should be like "a light-switch being flicked rather than a dimmer-switch being turned." "People are not just desperate to get their social lives back, but also to catch up on the social lives they have lost over the past 12 months," he wrote.
"Come the Spring, we can expect the UK economy to be firing on all three cylinders – households, companies and government. While today the economy is shrinking and inflation is well below target, a year from now annual growth could be in double-digits and inflation back on target," Haldane wrote. "The recovery should be one to remember after a year to forget."
This sums up perfectly what we and many other analysts believe will happen in Q2 this year and a big reason why the Pound is outperforming currently.
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