UK economy to recover strongly, or maybe not

The UK Government often charged with over-promising and under-delivering is determined to take full advantage of the positivity generated by the success of its vaccination programme to lay the foundations for a strong recovery as soon as they feel it is safe for lockdowns to begin to be lifted.

Chastened by criticism that he made several bad calls last year, the Prime Minister is determined that he listens to every piece of advice he receives, studies each data point and is inclusive of his planning not just for the recovery but the continued support for those individuals and businesses most affected by the Pandemic.

However, there are still dark clouds on the horizon as unemployment continues to rise and issues over Brexit remain a drag on activity and output.

The volume of goods leaving the UK for Europe fell by 68% last month compared to a year earlier.

There has clearly been a degree of close your eyes and pray in the Government’s response to the UK’s departure from the EU and simply labelling bottlenecks and logjams as teething problems displays a naivety that harks back to the issues seen at the height of the negotiations.

The Government hasn’t been solely to blame as Brussels has been determined not to make the transition any simpler than it needs to be, but Westminster decided to leave the EU, so it is beholden upon those responsible to ensure that trade flows smoothly.

Cabinet Minister Michael Gove, the man with overall responsibility has been charged by various trade associations with not acting with any foresight at all as fishing, fresh produce and supply chain businesses cry out for help with the level of bureaucracy now needed to work with EU firms.

The pound is benefitting from the success of the vaccination programme and the fact that the UK is inching closer to being able to lift restrictions and return to full activity.

Yesterday, it rose to a high of 1.3749, closing at 1.3742. A change in sentiment has seen talk of a break of the 1.40 level against the dollar being broken while versus the single currency, it is set to challenge long term resistance around 1.1480/1.1500.

Considering your next transfer? Log in to compare live quotes today.

In order to recover, new stimulus will be necessary

The U.S. economy is still some way from being on the path to a strong recovery despite bullish comments from officials at both the Fed and Treasury.

It is obvious that the new administration is determined to right the wrongs it perceived to have taken place over the past four years.

But scratch the surface beneath the strong words and you find a vaccination programme that is not delivering the pace of inoculation that is needed to bring new infections under control, and economic activity that is waiting for support and stimulus to be in a position to add new jobs to bring the level of employment back to even where it was a year ago.

Clearly the country suffers from two unique issues. The very size of the country that getting doses of vaccine to where they are most needed is logistically difficult. Furthermore, anti-vaxxers continue to add scare stories on social media about the effectiveness of the jab and what longer term side effects may be.

No matter the amount of support that Congress is prepared to pump into the economy, it remains just that, support, rather than stimulus to grease the wheels of commerce and get the country moving again.

Until a nationwide lifting of lockdowns begins, new jobs will continue to be at a premium and activity will remain weak.

The impeachment proceedings against former President Donald Trump continue with his legal team on the one hand handicapped by Trump’s refusal to concede the result of the election and continued claims of election fraud yet stridently denying any incitement of the riots seen last month that led to the storming of the Capitol Building.

While the whole impeachment proceedings have become little more than a sideshow, it is important that a line is drawn to enable the country to heal.

The dollar index fell yesterday to a low of 90.90, closing at 90.95 but remains in a moderately bullish upwards channel.

A conflicted Draghi torn between Brussels and Rome

Brussels is now unable to ignore the political machinations taking place in Rome.

The EU Commission is determined to work within its rules over domestic politics as seen in Hungary and Poland. But, when it suits it and the countries need the EU to continue their transition into free market economies, it can afford to be tough, but Italy is a completely different proposition.

Were Italy to depart the EU voluntarily, the effect on the rest of the Union would be potentially devastating.

The very least that can be expected from an Italian Government driven by Mario Draghi, is several challenges to the way financial support is provided, and a challenge the lack of understanding at the ECB of the needs of economies with differing backgrounds.

There are bound to be questions regarding Draghi’s behaviour as ECB President, but he had 19 economies to juggle and a currency to defend. Now far from being gamekeeper turned poacher, he will be charged with determining what is best for Italy and its people.

Draghi was strident last year in his demands that funds be allocated to infrastructure projects to build for the future rather than simply providing handouts but now he will need to deal with rising Pandemic induced poverty as well as trying to build for the future.

The story of Italy’s recovery will, according to Draghi, be determined in Rome not Brussels.

Investor morale in the wider eurozone economy has fallen significantly in the latest figures released yesterday. It was expected that the major economies of Germany, France and the Benelux countries would be beginning to work towards lifting restrictions. But so far there has been no glimmer of light regarding vaccinations which continue to report difficulties of supply and distribution.

Yesterday, the euro recovered a little versus a weaker dollar. It rose to a high of 1.2066, closing at 1.2051. Having seen a brief fall below 1.20, the single currency has recovered well, but further rises will add pain to the ECB’s inflation plans and see deflation continue.