RESTART RECOVER RENEW
Bringing solutions to the pandemic challenges Trevor Charsley, Senior Markets Advisor at AFEX, July 2020 Sometimes being in business can be very daunting, especially at this moment. The pandemic has hit the UK particularly hard under two different aspects: the number of deaths and the economic downturn. The question that many businesses are asking is this: Will the economic recovery be swift, or long and drawn out? The answer will help them prepare for the future. While it is, of course, impossible to predict what is yet to come, we can hopefully point you in the right direction. June’s economic release show UK GDP falling by 20.4% in May, with unemployment at only 3.9% (so far). The government, however, may be supporting as much as a third of the UK workforce with its furlough scheme, due to end in October. According to a recent study from Oxford Economics, 400,000 jobs may be lost in the creative industries due to the pandemic. HSBC is openly discussing cutting 35,000 banking jobs. This doesn’t suggest that unemployment or the economy will bounce back quickly.
The Bank of England projected a 14% fall in GDP for 2020, accompanied by an unemployment rate of 9%, with return to growth in 2022. The Bank’s predictions assume a trade deal will be struck between the UK and EU before the Brexit deadline. The UK government is pushing for a deal to be concluded by July, while the EU is suggesting October—but we have no idea what the agreement will look like. If a deal is agreed, businesses will have two months to react to the new terms, a very challenging timeframe to properly prepare and adapt.
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Import and export businesses have the added task of managing increased currency volatility. Over 10 days in March, GBP/USD fell sharply by 14% and GBP/ EUR by 9%. Businesses who had a flexible hedging policy in place were able to deal with this volatility. Those who didn’t, probably received an unwelcome shock.
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All taken together, we can conclude that the UK economy will take its time to recover. The ECB has suggested that the Eurozone GDP could fall by between 5% in its most positive scenario, and 12% in its worst-case scenario. The EU, however, is currently negotiating a euro 750 billion stimulus package, some of which will be distributed as grants. This is good news for the euro. But now the question is: Are the central banks telling us the likely direction of GBP/EUR? To find out more, please visit www.afex. com or contact Trevor Charsley on +44 (0)207 004 3866 | tcharsley@afex.com
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Trevor Charsley, Senior Markets Advisor at AFEX Bringing 25 years of FX sales and trading experience to bear on his market study, analysis and commentary. Trevor provides incisive market analysis and perspective, leavened by his wry humour and ever-present optimism, to AFEX clients and to the broader market through his weekly blog and videos. A sought-after speaker and successful currency forecaster on Bloomberg, Trevor is often quoted in the UK business press.
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