UK response to rising Covid-19 cases
Sterling edged higher yesterday as Boris Johnson announced a highly anticipated three tier alert system across the UK. In doing so, he also rejected a second national lockdown saying ‘it would not be the correct course of action’. The new system would see country divided by tiers, and those with the highest infection rates, subject to the strictest measures. Only Liverpool was placed into the highest category with pubs, gyms and bars set to be closed. Pressure will now be on Rishi Sunak to provide further financial support for those areas subject to these stricter measures.
Brexit negotiations are still ongoing as the 15th of October deadline is fast approaching. While there have been no new headlines regarding progress, markets remains optimistic a deal will be reached. Yesterday, cable held near one month highs above 1.3000 and GBP/EUR rate also tested one month highs at 1.1080 before correcting slightly. Major differences divide the two sides, as the bloc’s chief negotiator Michel Barnier will outline today when he addresses the European affairs ministers in Luxembourg. Both parties know that a no deal would be detrimental to the economies, something they are trying to avoid with Covid cases rising in UK and across the bloc.
Yesterday BoE Governor Bailey asked banks how ready they were for zero or negative interest rates. Bailey reiterated that the BoE is not considering them as a short term policy but wanted to ensure that measures are in place should they need them. BoE MPC member Haskel stated; “we keep an absolutely open mind on the suitability of negative interest rates”. While we don’t expect this to be implemented anytime soon if the economic recovery begins to stall no doubt we expect further action from the BoE.
This morning saw UK unemployment rates surge to its highest level in over three years. Unemployment grew to 4.5% in the three months to August compared with the previous reading of 4.2%. Additionally, redundancies rose to their highest level since 2009 according to the Office for National Statistics. With the furlough scheme set to end this month, these numbers will no doubt rise putting more pressure on sterling and the government.
12.30 GMT: USD Consumer Price Index ex Food & Energy (MoM)(Sep)
12.30 GMT: USD Consumer Price Index ex Food & Energy (YoY)(Sep)
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