Market Update

The second week of the year has been considerably stronger for the Pound (GBP) where we opened the first week on a high and were faced with sharp declines for the first five trading days of 2021. GBP has been one of the strongest performing currencies against it’s major peers this week. With Bank of England Governor, Andrew Bailey, indicating no real signs of a need to cut interest rates below zero coupled with extensive rollout forecasts for the Covid-19 vaccines; the GBP has retraced losses from last week. The big question is whether the single currency can hold onto these gains during a stricter lockdown period?

Gross Domestic Product (GDP) figures released this morning shows positive signs as expectation of only 3.4% growth over the 3 month average were outshone by an actual figure of 4.1%. The year on year figure for November, also released this morning, has surpassed forecasts also. During the month of November, where the UK government announced a second lockdown, many did depict a sharp fall in GDP due to the closure of many businesses however actual figures this morning showed the contrary. Together with these figures, stronger manufacturing production and industrial production also outweighed low expectations.

Going forward, as tougher restrictions have been placed this year and more businesses have been forced to close their door; could this lockdown meet market expectations of a decline in GDP? The closure of schools alone is being considered an important factor where economists are hinting a potential 2% cut in economic growth. The current third lockdown could lead to a contraction in the first quarter of 2021. A positive reading in the final quarter of 2020 will avoid a technical recession for the UK.

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