The GBPEUR exchange rate closed out another strong week above the April 2020 highs as Boris Johnson gets set to release his reopening strategy. The pair is still moving higher as traders expect the UK’s faster vaccination schedule to pay dividends, but that will depend on the Prime Minister. The UK has an opportunity to reopen and get a head start on Europe, with the Chancellor delivering a budget boost. Johnson would have a chance to boost Britain’s economic performance against the EU in the first year of post-EU trading, but his comments this week about “data, not dates,” suggest he may not grasp it fully.
Citigroup Urges Sunak to ‘Go Big’ in Budget
A Citigroup economist has urged the chancellor of the exchequer to “go big” on stimulus in the upcoming budget.
Ben Nabarro said: “We have the capacity to go big for sure, but at the same time, it’s important that we do keep a medium-term anchor on the public finances.”
The suggestion was that the UK should be expansionary but also reassure the markets that it understands the deficit issues.
Sunak will likely extend the furlough program and he is facing pressure from many sectors of the economy with hospitality and hauliers feeling the pinch. The hospitality sector wants reassurance about the future, while hauliers are warning against a fuel duty grab.
The Johnson government pledged not to raise taxes, national insurance or VAT, but the economic situation means nothing is fully off the table as the country seeks to close the budget gaps.
Johnson Could Unwind Vaccine Progress
Boris Johnson could roll back the progress seen with the vaccine as he drags his feet on lockdown. The GBP to EUR rate has moved on expectations of the UK reopening more quickly than its European counterparts. If Boris Johnson stalls the reopening, then it could see a pullback in the British pound.
The Prime Minister’s “roadmap” in England is reportedly going to see five stages of reopening over five months. A slow move to restarting the country would waste the quick vaccine pace and with 25% of the population having received their first dose of the vaccine, it would also seem unnecessary.
The pound to euro exchange rate has moved higher in 2021 as the Brexit premium was removed and the country delivered a quick vaccination programme. The Prime Minister and Chancellor now have a chance to power a strong recovery in the second quarter and this could add to the sterling gains.
The UK has seen mixed data in the last week as inflation ticked higher against weak retail sales, while services PMI was stronger than expected.
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