The British pound decreased against the dollar and euro on January 11. This news came in the middle of a deteriorating outlook for the UK economy as the coronavirus pandemic continues and the Brexit deal is finalized.
British Pound Plummets
This report came as a poll of polls suggested UK business output continued to decrease in December 2020, usually a busier season for financial firms in the run-up to the holidays.
The COVID-19 restrictions were also less widespread than it did in November 2020 and at present under a tiered system of regional curbs. Economists have also predicted a recession in the UK back in last year’s strict lockdown.
Kaley Crossthwaite, a partner at business advisory firm BDO, which carried out the UK’s economic survey, stated that figures revealed: “just how stark the economic impact of the pandemic has been.” The data of BDO is based on an analysis of leading UK business surveys.
The Federation of Small Businesses or FSB held another survey, and it suggests that around 250,000 small financial firms are expected to close down in 2021 due to the pandemic and Brexit.
The UK government is also considering stricter restrictions as the coronavirus has mutated, making transmission increase unprecedented. The COVID-19 cases in hospitals hit a record high in the UK, and the death toll has passed 80,000 in the past week.
UK has vowed to vaccinate around 15 million of the most vulnerable people by February 2021 and every UK adult by mid-2021.
At least seven vaccination centers were due to open this month.
Numerous firms face disruption from the lockdown and the overhaul of UK and EU trade rules at the beginning of the months as the Brexit trade deal came into effect.
Make survey shows that almost half of its members are worried about custom delays and acknowledging it as their most significant risk this year. Around 39% stated that the increased costs of complying with regulation are the biggest risk that they face, and approximately 14% are worried about major customers moving outside the UK.
Meanwhile, Sterling traded 0.5% lower at $1.35 and 0.3% lower against the euro at €1.107 in early trading on January 11 in the UK.
The British pound started 2021 at its highest level against the dollar in 2018 in the aftermath of the UK-EU trade deal being passed. However, ING analysts stated that the UK’s third nationwide lockdown due to COVID-19 had built up expectations of new monetary stimulus by the Bank of England, which changes the positive effect of the trade deal.
Pantheon Macroeconomics chief UK economist Samuel Tombs stated in a note, “The potential for the monetary policy committee (MPC) to reduce Bank Rate below zero will be in focus this week, with MPC members.” Tenreyro and Broadbent set to speak on Monday and Tuesday, respectively.
They added that “Investors see little chance of immediate action from the MPC, but are pricing in a 10bp decline in Bank Rate, from its current 0.10% level, by the committee’s meeting on August 5. The double-edged nature of taking Bank Rate below zero, however, suggests that the MPC will use its other tools instead.”