Sterling falls as third national lockdown causes largest decline in business activity since May, leaving Britain facing a double dip
Sterling fell yesterday as the third national lockdown triggered the biggest drop in business activity since May, leaving Britain facing a double dip.
After a two and a half year high against the dollar of $ 1.3746 and an eight month high against the euro of € 1.1324 on Thursday, the pound dropped to a low of $ 1.3652 and € 1.1217.
The sell-off followed a wave of bleak economic news as Britain continues to be battered by the Covid-19 pandemic.
Sell-off: After hitting a two and a half year high against the dollar at $ 1.3746 on Thursday, the pound fell to $ 1.352
Research group IHS Markit said its activity index in the UK economy – where 50 is the line between growth and decline – has fallen to 40.8 this month.
That was the lowest level since May and suggested that the latest lockdown at the beginning of this year was hurting the economy.
Separate figures from the Office for National Statistics showed that retail sales fell 1.9 percent last year – the highest ever – leaving the High Street in crisis. The ONS also said the government borrowed a record £ 34.1 billion – or more than £ 1 billion a day – in December as the cost of the coronavirus increased.
Loans in the first nine months of the fiscal year were £ 270.8 billion and public debt now stands at over £ 2 trillion.
Chris Williamson, chief business economist at IHS Markit, said: “ A sharp slump in business activity in January puts the stalled UK economy on track to contract sharply in the first quarter of 2021, signaling a double dip recession on the way. . ‘
Britain entered a recession in early 2020, with the economy shrinking by 3 percent in the first quarter and by 18.8 percent in the second quarter. It grew 16 percent in the third quarter, but tough new restrictions to slow the spread of the virus have derailed the recovery.
IHS Markit said the services sector has been particularly hard hit as shops, bars and restaurants have closed. The index of activity in the services sector fell to 38.8, while the industry reached a score of 50.3 – meaning the industry continues to grow, but only slightly. Simon Harvey, senior foreign exchange analyst at Monex Europe, said the numbers will be “a bitter pill for markets to swallow.”
The pound has seen steady gains against the dollar and euro since late last year when Britain entered into a Brexit trade deal with the EU and started aggressively rolling out Covid vaccines. But hopes for an early end to the lockdown are fading.
Jane Foley, head of currency strategy at Rabobank, said weak economic data coupled with the “suggestion that schools won’t open until April, with non-essential stores opening even later in England, bodes badly for the recovery story.”