The UK economy contracted by a whopping 20.4% in the month of April as the country was paralysed by the coronavirus lockdown.
This was the largest slump since records began and worse than forecast. Although April is likely to represent the trough in GDP, it demonstrates how severe the impact of Covid-19 has been on our economy and how the recovery might take longer than previously anticipated. The vast fiscal costs of the collapse and the large rise in unemployment are likely to create long-term economic damage. So far these figures haven’t had a huge impact on Sterling though.
Brexit continues to weigh on Sterling and the UK government are expected to formally declare they will not be requesting an extension to the transition period – regardless of the ongoing coronavirus crisis. However, they’re expected to announce a loosening of the border checks for imported goods after the transition period to help reduce the burden on British businesses. Brexit negotiators have also agreed to “an intensified timetable” for talks over the coming weeks in an attempt to make some progress on securing a deal. Recent talks have stalled and a breakthrough continues to feel a way off.
In other news, US stocks plummeted yesterday – the biggest falls since March (-6%) – as analysts’ fears increased of a potential second wave of coronavirus cases in the US. Covid-19 cases have been rising in many US States over the past couple of weeks and Florida, Texas and Arizona all registered their highest number of new daily cases yesterday. This all comes at a time when the US government have been easing restrictions and pushing for the US economy to reopen quickly. The recent widespread protests in the US only adds further reasons to be concerned. With the US Government declaring they will not lockdown the economy again, it remains to be seen how a second wave would play out and how damaging (and long-lasting) the impacts would be on their economy.
As a result, the GBP/USD moved around 1% lower yesterday, but it has already clawed back around half of this today. The GBP/EUR has been trading within a fairly tight range and, although it edged lower yesterday, it has also recovered some ground today.
US Covid-19 case numbers will be closely watched out of the States later on today and then eyes will turn to Boris Johnson’s (remote) meeting with the European Commission President on Monday to discuss Brexit.