- Posted by currencies in Bank of England, coronavirus, Currency, Dollar, Economy, EUR, Fed, GBP, Inflation, Sterling, UK, Uncategorised
- May 13, 2021
- No Comments
We saw some more cause for optimism for The UK’s road to recovery out of the current pandemic with GDP figures showing that The UK’s economy grew stronger than expected in March by 2.1%. Quarterly GDP for the first 3 months of 2021 dropped by 1.5% but again was surprisingly softer than the initial 1.7% decline predicted. A lack of retail sales between January & March prevented the GDP figures from coming out even better for the first quarter.
We also had the Bank of England policymaker Jonathan Haskel speaking yesterday regarding concerns around The UK’s inflation figures in the near term. All the talk of late from the main central banks globally has centred around inflation shooting up and the possible implications for interest rates or monetary policy. Last week the Bank of England forecast inflation to rise above 2.5% by the end of 2021 before falling back to the 2% target throughout 2022. For the time being, however, the Bank of England aren’t too concerned about inflation but there’s no doubt consumer spending habits and the employment picture will have a big impact on their mindset over the coming months.
The past few weeks in Europe has provided increasing optimism for the economic outlook in the bloc, largely down to an accelerating vaccination program which is helping The Eurozone see light at the end of the pandemic tunnel. The European Commission stated yesterday that the bloc will expand by 4.3% in 2021 and 4.4% through 2022, both more importantly climbing from a stagnant 3.8% in both years. This improved outlook coming off the back of the rising vaccination rates has allowed the easing of lockdown in many member states across the region, most notably with Portugal being added to The UK’s ‘Green Travel List’.
The next crucial bit of economic data for The Euro-Zone will be GDP Growth due out next Tuesday which will give us an insight to how the economy has performed since certain restrictions have been lifted as well as inflation out the following day.
Wednesday saw the USD recover some of the losses suffered from last week’s Non-Farm employment data, with inflation rising way above expectations of 3.6%, coming in at 4.2%. This has caused some concern that The Fed Reserve may need to move away from its current monetary policy sooner than what the guidance currently suggests. The rise in inflation is the highest it’s been since the eve of the 2008 financial crisis.
The Fed have been very keen to stress that a bounce in prices due to an economic recovery is temporary and therefore shouldn’t have much influence on the topic of tapering the policy, however the weekly Jobless Claims due out later this afternoon and the Retail Sales due out Friday will no doubt paint a better picture for guidance on whether a rise in inflation will continue.