The pound strengthened against the euro, due to positive market sentiment as a result of the intense and ongoing vaccination rollout programme. Goldman Sachs has speculated that the pound could even rise further against the euro.
Rishi Sunak’s Budget announcement boosts sentiment
Following the budget announcement, the Wall Street investment bank told its clients to trade in Sterling as the UK economy is expected to grow in the coming months. UK Chancellor Rishi Sunak’s budget announcement last Wednesday revealed spending and taxation plans that were better than expected. Sunak announced that an additional £65 billion will be provided for spending, grants and tax breaks with the total additional spending and benefits reaching £352 billion. "The UK economy is well-positioned for the coming recovery," Goldman Sachs’ Zach Pandl said. "The support program laid out by the government surprised consensus expectations to the upside, and included a number of economic incentives aimed at medium-term investment." Most economists believe that supporting the economy generously during the covid crisis will help the economy grow stronger faster and avoid any long-term negative effects.
Vaccination programme also offers support to pound
Goldman Sachs’ economist Pandl also noted that the UK’s vaccination programme has helped the economy. He said: "Solid household and business balance sheets should soon translate into robust growth, as the UK’s strategy of prioritising getting more people vaccinated with a single dose appears to be paying dividends. We are therefore keeping open the short EUR/GBP component of our long GBP/CHF cross trade.”
Britain has outperformed on its vaccination programme, especially when compared to other European countries, with more than 21 million people having received the first dose of a Covid-19 vaccine.
UK business confidence hits 12-month high
The UK’s fast vaccination programme has also had a positive effect on businesses’ confidence. According to the latest Business Trends report from accountancy and business advisory firm BDO LLP, service sector confidence jumped in February to its highest level since the pandemic began.
BDO’s Services Optimism Index rose to 94.13 in February from 86.60 in January, back towards the long-term average of 100. This is the highest reading in 12 months for the survey, which covers a a wide range of industries from retail and hospitality to professional services.
Also, according to polling firm YouGov, British consumer confidence has risen to its highest level since the coronavirus pandemic started, according to polling firm YouGov. YouGov reported that consumer confidence rose to 105.4, driven by expectations for house prices, business activity, and household finances over 2022.
The governor of the Bank of England, Andrew Bailey, has also expressed optimism about the economy but also cautioned for unrealistic expectations, as life will not return to pre-Covid levels. He noted that there is a “growing sense” of economic optimism building. He said that Covid has hurt demand and supply which some of the structural changes in the last year will not really change.
Bailey said: “The best we can say is that how the output gap develops in the recovery from Covid will depend on the net effect of the two [demand and supply], both of which will need to move by more than in normal recoveries. There is another element to this part of the story which is hard to assess at present, namely to what extent the more structural changes we have seen during the Covid crisis will persist, and what effect they will have on the recovery? In general, however, economists remain optimistic and the pounds recent surge owes a lot to the government’s successful vaccination programme.
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