“As the country reopens, people are eager to go and enjoy the things they’ve been deprived of for over a year. People will travel, party and go out again, meaning that the overall UK economy will get a boost,” says Adam Seagrave, Global Head of Sales Trading at Saxo Group.
Therefore it is expected that leisure, hospitality, entertainment and retail will be some of the main financial winners of the reopening, whereas companies within online services, food delivery services, building and renovations as well as building materials could be negatively impacted.
Alongside the reopening of the country and a strengthened economy, there are multiple reasons why the British pound is expected to continue to be one of the strongest currencies in 2021.
“The UK Freedom Day means a reopening of the country before most of its European peers. At the same time, it sounds like the European Central Bank’s monetary support won’t go away in the near future, unlike what we’re seeing in other parts of the world. Also, last week we saw a hotter UK inflation than expected. This points towards a stronger pound in relation to other currencies and especially the Euro,” says John Hardy, Head of FX Strategy at Saxo Group.
The strong inflation figures mentioned above will affect the economy in different ways. “Inflation will impact various industries differently depending how the reopening will influence their activity. Certain price pressures are expected to cool off for commodities and building materials. For example, the travel industry in the UK should get a boost especially as the COVID situation of certain traditional destination countries (Spain or France) is getting in the way of the normal influx of UK tourists. Money will instead be spent in the UK,” says Seagrave.
The British economy looks in good shape in the short term, but according to Seagrave it is “worth noting that most markets have already priced in quite a lot of the country’s financial recovery, although this move still has legs in the short to medium term providing all goes to plan.”
Adding to that, there’s risk that the economy won’t bounce back as hoped: “It is important that we see a return to full employment as this is crucial for the economy, and obviously for that we need to avoid new COVID-19 lockdowns,” says Seagrave.
If you want to track the development of the British pound, take a look at our Forex analysis and inspiration page here.
If you want to learn more about how inflation affects the economy, take a look at the Saxo Session with our Chief Investment Officer Steen Jakobsen here.