As we noted earlier, despite the U.K. falling into its worst recession in three centuries, the British pound rose to an exchange rate of £1.41 to the dollar on 24 February, its highest value since April 2018.
The pound’s value had slumped for more than a year under Brexit fears and the damage inflicted by severe serial economic closures during the COVID pandemic.
Now, with the government’s benchmark of inoculating 15 million people, the news that the U.K. is touting to become the first major western nation to vaccinate much of its adult population by mid-February, the “jab in the arm news” has helped bounce up the pound.
Only Israel and the United Arab Emirates have vaccinated a higher percentage of their populations, according to OurWorldInData.org.
Also, the dollar’s continued weakness is expected to send the pound’s value higher still.
“There’s a re-rating by investors of the U.K. in general,” Chris Turner, chief of foreign exchange strategy at ING bank, told the Wall Street Journal. The pace of the vaccination campaign in Britain is “giving investors confidence in a second-quarter recovery.”
TREND FORECAST: That stronger pound was also boosted by recent optimistic comments about the economy’s future by Bank of England officials, quashing fears that the bank would send interest rates below zero. Negative interest rates could weaken the pound and impinge on banks’ profitability.
A pricier pound, however, will make U.K. exports more expensive and will crimp profits of large companies selling internationally. Those companies make up a large share of Britain’s benchmark FTSE 100 stock index.
While there will be an economic bounce back, with the uncertainty of Brexit and an imperiled global economy – plus the nation’s economic destruction caused by the long lockdown – the trajectory of both the pound and the U.K.’s economy we forecast will trend downward.
Prime Minister Boris Johnson imposed one of the harshest and longest series of lockdowns of any Western nation to fight the COVID War. Some restrictions are now slowly being relaxed, and it is reported all restrictions will be lifted by 21 June.
Any of these dates could change depending on interruptions in the vaccination campaign, new twists in the virus’s mutations… or for whatever reasons the government makes up to keep restrictions. In any event, the damage done by the lockdowns is irreparable.
