Freedom Day set to boost British Economy
Summary: Today, UK Prime Minister Boris Johnson lifted England's COVID-19 restrictions allowing businesses to reopen and travel to return.
The dark pandemic clouds, which have been hanging over the British economy, could evaporate with today's removal of COVID-19 restrictions. This, among other things, means that the pubs can fit more customers, nightclubs can reopen and it is again possible to travel to and from amber countries without needing to self-isolate. In short, the UK economy can pick up the pace.
“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 learn more about how inflation affects the economy, take a look at the Saxo Session with our Chief Investment Officer Steen Jakobsen here.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.