Good morning,
The UK has taken its long-awaited next step in reopening the economy, with indoor hospitality restrictions being lifted. Fears around the so-called ‘Indian variant’ and its effects on the post-lockdown roadmap still linger, and negative developments could exert downward pressure on the pound over the coming days and weeks.
Meanwhile, the case for a strong economic rebound in the medium to long-term is finding broad support in recent data releases. Certain analysts have revised their forecasted growth figures to 6% for 2021, which would mark the strongest year since 1973.
Other key data releases this week which will be scrutinised are the labour market data, CPI and retail sales for April, and May’s preliminary PMI’s. Should the labour market figures disappoint, GBP could find itself on shaky ground. The April CPI reading (a measure of inflation) is also likely to attract a lot of attention, not least due to the recent tremors felt when the US figures came out. If the headline comes out higher than the consensus reading of 1.40%, the pound may catch a bid against its major rivals. Markets may see it as a sign that the Bank of England will need to bring forward expectations for the first interest rate hike.
Much like their US counterparts however, the ‘Old Lady of Threadneedle Street’ is of the view that any inflation pressures are temporary at best, expecting them to normalise once the initial ‘post-lockdown rush’ has subsided. It may take more than short-term data before they move the needle on their position.
Have a great day.
Thomas De Caluwe, Relationship Manager.
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