Stephen Eakins
September 17, 2021

UK GDP Climbs Despite Global Inflation Concerns

Sterling

As of the beginning of this week, the UK has administered 48.4m first vaccine doses and 43.9m second vaccine doses, up by 0.2m and 0.5m, from the week prior. This translates to 135 doses per 100 people, China sits currently at 148, Spain 146, France 134, Germany 124, and the US at 112.

The UK recorded 267,880 COVID-19 cases in the seven days to 10 September, an increase of 11.5% on the previous week and hospitalisations in the week to 6 September were up 3.6% on the previous week.

This noticeable climb has been put widely down to the ‘return to the office’ and ‘return to school’ but has caught mainstream media as fears mount that we could see a string of new lockdowns in the Winter if the levels keep climbing.  Commentary from the UK Government is to roll out booster jabs this winter but any building view of shutdowns could have a negative impact on the Pound’s value due to the economic impacts.

Economically UK GDP rose by 0.1% in July, below expectations, as rising COVID-19 infections disrupted activity. The National Institute of Economic and Social Research expects GDP to rise by 0.7% in August, driven by domestic tourism and hospitality activity opening with more weddings and a sharp increase in sales of suits for example.

Saying that today the UK government is expected to make changes to the travel restrictions/conditions for England. This could be for people not vaccinated and potentially the ‘traffic light’ categories. If confirmed this is positive news for international travel but may have an impact on domestic travel.

It was also reported that the UK government announced the easing of pandemic insolvency protections from the end of September. Politically the next big potential stumbling block for the UK is around unemployment with the furlough scheme coming to an estimated close at the end of the month. Currently, it has been reported that around 1.5 million people are in the scheme and if these numbers move to unemployment, it could paint a much worse image on jobless figures. Saying that there are wide reports about staffing shortages and as a result wage inflation as they try and attract new staff.

Currently, GBPEUR sits within a tight range near a month high against the single currency but with everything happening economically and politically currently, that may well change. The same can be said with regards to GBPUSD which is near 1.38 at the central level and has also spiked to month highs on occasions. To be in the best place to take advantage of positive movements it’s important to make your position and aspirations aware to your dedicated trader here at Lumon. We have several tools ranging from spike notification to automatic orders with an aim of assisting you to reach your goals.

The next economic update from the UK is next Thursday which is a key event for anyone with any Sterling exposure as the Bank of England (BOE) holds its meeting.  With Inflation and the changing levels of government support, the bank’s forecast and expectations for the future are likely to have all the ingredients to impact sterling’s value and set the trend for movement for the coming weeks.

Euro

In Europe, the European Central Bank (ECB) announced that it would slightly reduce its monthly bond purchases for the rest of 2021.

Inflation globally is a growing worry as central banks continue to try and find the right balance of supporting economic growth as well as balancing inflation.  This inflation seems to be down to a number of reasons including staff shortages and manufacturing shutdowns through the pandemic. An area of the economy that has taken much longer to ‘bounce back’ however is that of shipping. 

The cost of freight, both because of shipping and indeed driver shortages, has caused a steep cost increase impacting businesses that are ultimately starting to filter through to consumers with price increases.  Some businesses have put a marker in place, however. For example, the French container shipping line CMA CGM froze its freight rates for five months to prioritise its long-term relationship with customers facing volatile shipping costs. It was also reported by the FT over the weekend that car manufacturers including BMW plan to “lock-in” the price increases they have achieved on vehicles during the pandemic. They have the well-reported challenge of a shortage of semiconductors to also contend with, with some factories expected to have to slow production as a result, for example, Apple. According to the story, the carmakers’ aim is to consciously undersupply demand when shortages ease to maintain pricing power. It’s the sort of story likely to make central bankers nervous. It is just one example, but it illustrates how price rises caused by temporary factors have the potential to become a bigger longer lasting issue for the central banks to manage.

Later today the European central bank confirms the Consumer Price Index for the single currency. This is expected to show an expansion and could well strengthen the EURO’s price making it more expensive to buy before the weekend.

Next week the European Central Bank also meets on Wednesday. This is a key event for the Euro with all the moving parts happening economically currently.

US Dollar

In the US Covid vacancies hit a record high of 10.9m in July, a higher number than the 8.9m Americans who were unemployed and seeking work. Why this is important is because the Biden administration announced plans to demand that US companies with 100 workers or more require staff to be vaccinated against COVID-19 or get tested weekly. It will also require federal employees and contractors to be vaccinated against COVID-19. The Biden administration announced plans to spend $65bn over the coming decade to plan for future pandemics.

Economically the debt ceiling has come back into the spotlight with the US treasury secretary Janet Yellen warning that the treasury will run out of funds in October unless Congress agrees to raise the debt ceiling. (This is the government agreed spending level referred to as the debt ceiling.)

Other industrial news helping paint the picture of what the ‘with Covid’ environment will be was airlines recently. Several US airlines announced a slowdown in demand in the month of August. Delta Air Lines said that business travel is around 40% of pre-pandemic levels, below its expectations of 60%.
Yesterday economically the US released its Retail sales figures for the month of August. This showed a contraction however less than some had expected, resulting in the USD gaining in value on the day.

Later today there is an important consumer data release at 15:00 London time to be aware of prior to the weekend. Next week we also have the FED meeting taking place on Wednesday evening. This again could well be key and certainly is something to be aware of if you have any USD exposure. The event takes place out of business hours so make sure to discuss your options with your dedicated trader here including the potential use of limit orders and stop-loss orders to protect your exposure against any adverse movements. For more information on these tools please make sure to get in touch.

This blog post is intended to provide you with information on the services Lumon Pay Ltd (“LPL”) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates provided therein are for indicative purposes only and are not intended to give an accurate reflection of current currency exchange rates or to predict future movements in currency exchange rates. LPL, trading as Lumon, is a company registered in England with its registered address at Building 1, Chalfont Park, Gerrards Cross, Buckinghamshire SL9 0BG. LPL is authorised by the Financial Conduct Authority as an Electronic Money Institution (FRN: 902022).