Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Saxo Group
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 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.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)