Better Q4 Data

The latest data out of the UK today has helped deliver some much-needed optimism. The Office for National Statistics reported that in the fourth quarter, the UK economy grew by 1%. This was above estimates for a 0.5% result and means that the UK avoided a double dip recession. There had been fears of a move into negative territory as a result of the return to lockdowns over Q4, however, despite a downward revision to November’s data, the quarter as a whole remained in positive territory.

Worst Economic Contraction On Record in 2020

While Q4 results were better than expected, however, the UK’s overall growth data for 2020 made for quite bleak reading. At -9.9%, the UK economic contraction was the worst on record. The record -breaking slump was deeper than the -9.7% contraction experienced in the recession of 1921 and means that the UK was the worst hit of all G7 economies. Along with suffering the biggest economic impact from the virus, the UK also suffered the highest death toll in Europe. One argument has been that this is because the UK has a greater reliance on face to face consumer services than other countries.

BOE: Strong Rebound Expected in 2021

Despite the record drop across 2020, there are strong expectations for a firm rebound this year. With the UK leading Europe in terms of the number of people vaccinated, the government and central bank are both eyeing the easing of restrictions across Q2 as the start of the recovery for the UK.

The Bank of England’s head economist, Andy Haldane, wrote an article for the UK Daily Mail today saying that the UK economy is like a “coiled spring” waiting to explode once restrictions ease. In his piece, Haldane explained: "The rapid rollout of the vaccination programme across the UK means a decisive corner has been turned in the battle against Covid. A decisive corner is about to be turned for the economy too, with enormous amounts of pent-up financial energy waiting to be released, like a coiled spring." The BOE estimates that UK households have accumulated around £125 billion in savings which could reach as high as £250 billion by the summer and the bank is expecting a surge in spending once restrictions lift this year.

NIES Backs BOE View

The National Institute of Economic and Social Research echoed these sentiments, reporting today that while Q1 data is likely to be weak given the elevated restrictions in place, it too is expecting activity to begin rebounding firmly from Q2 onwards.

Technical Views

GBPUSD

The recent rally in GBPUSD has seen price breaking out above the 1.3747 level. In line with the bull channel which has framed the drive off 2020 lows, the bias remains skewed towards further upside. Should we see any correction lower, the 1.3516 level support, along with the rising channel low, will be the key area for bulls to defend.

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