Following an underwhelming performance by the pound on Friday, which saw it drop to a two-week low against the dollar, the UK currency was hoping for some central bank support yesterday – but it was uninspired, leaving it hovering at 1.38. Speaking at an event organised by the Resolution Foundation thinktank, Bank of England (BoE) Governor Andrew Bailey said that while the end of the Covid crisis is within sight, the economy will never fully return to its pre-pandemic pattern.
Mr Bailey expects the shifts in spending and working patterns that were triggered by lockdown restrictions to become permanent: “We will work more from home than we used to and shop more online because new habits will persist to some degree, and to the extent they unwind it will be over a period of time.”
Despite going through a “traumatic experience” he also believes the impact caused to the economy by the deepest recession in 300 years would be less than that caused by the decline of heavy industry in the 1980s and early 1990s.
There was some room for cautious optimism. Having highlighted the recent uplift in consumer and business confidence, the decline in Covid infections, and the rapid pace of the vaccine programme, Bailey said: “If I had to summarise the diagnosis, it’s positive but with large doses of cautionary realism.”
Bailey also said the BoE would be reducing its forecast for the peak in unemployment following the extension of the furlough scheme until the end of September in last week’s budget statement: “My expectation would be that this is likely to reduce the peak level of unemployment over the coming months. However, some rise in unemployment as the scheme tapers will be hard to avoid.”
UK retail sales grew again in February after shrinking the previous month, although the British Retail Consortium (BRC) cautioned that many retailers were concerned about surviving until the provisional April 12 reopening date. According to the latest BRC-KPMG Sales Monitor, retail sales increased 9.5% on a like-for-like basis and 1% on a total basis last month.
Dollar Strengthens on Firmer US Yields
Dollar strength contributed to the slump in the pound to dollar rate on Friday – and the US currency maintained its firm footing as the new week dawned. Without any notable data to impact its performance, it profited from a risk-off mood in markets after rising US Treasury yields spooked investors.
A barren couple of days in the UK economic calendar means Thursday’s RICS Housing Price Balance reading is the next scheduled release. Meanwhile, a lack of notable data from the US today means investor attention will be fixed on tomorrow’s Consumer Price Index (excluding food and energy).
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