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Tale of two cities

The UK’s vaccination effort really has turned out to be a success. Over a third of adults in the UK have received a dose, and vaccinations for over 50’s is set to begin in mid-April. Of course, in the meantime, UK schools will reopen en masse on March 8th, and limited outdoor sports and gatherings are set to reopen from March 29th. This increases the threat of rising infection rates during the spring, before the whole of the most vulnerable groups are inoculated, but the consensus is that this seems to a balanced move.   

But you might ask, balanced against what? The UK economy isn’t looking quite so rosy, despite various and expensive support schemes from the government. If we want to understand where the economy is now, let’s start with the most forward-looking economic indicators. UK Services Purchasing Manager’s Index from earlier this month came in at 39.5, having declined from around the 50.0 no-change region just a month prior. That’s a staggeringly poor number, but not a surprising one, given we plumbed the depths of 13.4 in May 2020 before recovering towards 50.0 in the back end of 2020. Similarly, all manner of output metrics tell an unfortunate tale of decline. Both Industrial Production and Manufacturing Production came out much worse than expected in mid-February.

This sets the scene nicely for the belt-tightening, which follows closely on the heels of the reopening of the economy. Chancellor Rishi Sunak expects to raise the corporate tax rate by 1.0% to 19.0% in next month’s Budget before following on with three more such increases before the next election. Despite numerous earlier proposals for unconventional measures to bridge the gap—like wealth taxes, etc.—it seems the government is likely to push forward with the same old tactics but may not get the same old results.

Bottom line: The ultimate question the government is trying to answer is different from the one that solves the country’s economic problem. Boris Johnson is trying to mete out the least unpalatable medicine for a malady predating Covid, namely a budget deficit. Unfortunately, the lockdown has drawn our attention to our economic growth's unequal nature, a symptom the corporate tax does nothing to alleviate. This inequality can also be viewed at various granularity levels—online businesses have done better than hotels, boomers have done better than millennials, etc.—which is to say it’s a complex issue. We haven’t seen many signs the government is capable of addressing these issues, which has knock-on effects on growth as the ailing patient that is Britain, shambles along.

The week ahead


Cable has gone from strength to strength recently, breaking out above $1.40 last week while the UK continued to build on its vaccination efforts. The PM has announced a bold new target for vaccinations, which would cover everybody over 50 by mid-April. This is particularly encouraging when you consider that an Israeli vaccination study showed an 89% effectiveness in reducing both symptomatic and asymptomatic infections in a study of 7,000 healthcare workers. As schools look set to re-open from the 8th of March, the UK’s route out of the current lockdown appears hopeful. 

  • Claimant Count Change data is due on Tuesday, forecast to come in at 25K versus 7K last month.  
  • The Unemployment Rate looks like it will remain relatively unchanged at 5.1% versus 5.0% last month. 
  • On Wednesday, the Monetary Policy Report Hearings take place. 
  • The G20 is set to meet at the end of the week.


The Euro held against the US Dollar last week at $1.21 as the continent begins to gather pace in the fight against coronavirus. The EU has lagged behind UK vaccination efforts, so it’s positive to note that the European Commission approved a further 300 million doses of the Moderna vaccine for all member states. Better-than-expected PMI and inflation data out of Germany appeared to aid the common currency indicating that Europe’s largest economy is weathering the second coronavirus wave. ECB President Christine Lagarde is due to speak at the European Semester Conference on Monday. 

  • Final CPI and core CPI figures are expected to read 0.9% and 1.4%, respectively. 
  • German Consumer Climate is due on Thursday, forecast to come in at -14.0 vs -15.6 last month. 
  • Spain Flash CPI y/y is set to remain unchanged at 0.5%. 


The US Dollar Index edged lower at the end of last week as inflation and treasury yields began to move higher. Vaccine progress continues, and the economy appears to be recovering as stronger-than-expected Retail Sales were released for January, up 5.3% from the previous month. Although there are signs of recovery, the US's job market is far from full employment, and the Federal Reserve’s target of 2.0% inflation is out of reach. Joe Biden is intent on bolstering the American economy further by attempting to get a $1.9 trillion stimulus package through the US House this week. 

  • Fed Chair Jerome Powell is due to testify before the Senate Banking Committee this Tuesday. 
  • CB Consumer Confidence is forecast to come in at 90.2 vs 89.3 last month. 
  • Crude Oil Inventories are to be released on Wednesday, printing at -7.3M last week. 
  • Preliminary GDP q/q is forecast at 4.1% vs 4.0% in the previous quarter. 
  • Unemployment claims are scheduled for Thursday, reporting 861K last week. 

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