The pound gained nearly 0.5 per cent against the euro in yesterday’s trading despite the UK economy contracting at its fastest rate in at least two decades. Labour-market economists painted a disastrous jobs outlook as the economic damage from the coronavirus crisis takes effect. The only saving grace for the pound is that the economic climate is equally dismal elsewhere UK figures fairing slightly better. GBPEUR has started the today around 1.1450, holding onto the gains from yesterday.
The Health Secretary Matt Hancock has said that the government wants to see a drop in the infection rate before any of the restrictions are lifted. Sir Patrick Vallance, the UK’s Chief Scientific Advisor also noted that coronavirus hospital cases are either flat or on their way down. The number of people in hospitals with coronavirus is 10 per cent lower than this time next week. Whilst Boris Johnson has not appeared in public, he is working with his peers, and is expected back in office on Monday. The UK will remain on lockdown for at least another two weeks, but the pressure is mounting on the government to publish an exit strategy as more businesses go bust and unemployment sores.
Euro GDP to Contract by 9 per Cent This Year, Says European Central Bank
European Central Bank President Christine Lagarde has told the 27 EU heads of state that she estimates GDP could fall by 9 percent this year, but as much as 15 percent, particularly if EU leaders fail to provide a sufficient rescue package. Europe has felt the worst of the crisis with a death toll of more than 100,000 with businesses on lockdown and travel blocked. The EU has been hampered by the inability of the leaders to agree a financial rescue package. Southern nations, including Spain and Italy, along with France have called on the EU to introduce Eurobonds, which would be a mutualised debt between all nations. However, the richer nations of the north, led by Germany and the Netherlands are reluctant to take on Eurobonds through fear of being left with the debt.
The European Commission has proposed a €2 trillion bailout fund, which would build part of the debt into the 2021 EU budget and borrow part on the capital market. The EU could then feed the states in most need proportionately. However, even if an agreement is reached this time round, this does not solve the existential problem, that being without fiscal consolidation and the emergence of an EU super-state, the EU runs a high risk of falling apart.
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