09/02/2021

Sterling supported as Covid infections fall


GBP

Sterling continued its strong run of form as vaccination numbers paint somewhat of a positive picture for the UK. Close to 20% of the adult population have now been given their first dose which towers over the mere 3.7% vaccinated in the EU. Furthermore, the UK’s approach to vaccinate those in the highest risk categories now appears to be paying dividends. The overall infection rate in the UK continues to fall sharply as new deaths and infections dropped once again yesterday. Additionally hospitalizations, relative to cases, also have been falling. This last point is key, as the pressure on the NHS is what caused the government to trigger the latest lockdown. Finally, It appears the government are also on track to meet their mid-February target which could see further sterling strength in the short term.

After last week’s move by the BoE to keep interest rates the same, investors believe there is tremendous upside for sterling this year. Governor Bailey was quoted saying ‘ the UK is set for a post Covid spending Binge, as the money saved during the pandemic is put to work’. If this is the case, an economic recovery could be seen much quicker than originally anticipated as people spend money saved during lockdown thus stimulating the economy. As a result, the BoE have changed their Q1 to Q2 GDP growth forecast from 10% in November to 14.2%. While this may be optimistic, for once in a long time, things are looking positive for the UK economy.

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