UK’s crisis ground zero is ready for reconstruction

22 March, 2021 12:00 AM printer

LONDON: The British economy’s worst moments in the coronavirus crisis are hopefully behind it, and hints of that thesis coming true might emerge in reports due this week.

The first expansion of U.K. services for five months, a partial rebound of retail sales and the fastest inflation since July are just some of the outcomes anticipated by economists in a slew of data for the most recent periods available in the current quarter. In a reminder of the damage caused, unemployment may also have reached the highest since 2015, report agencies.

A fledgling pickup could lay the foundations for a reversal in Britain’s fortunes following what Bloomberg Economics describes as a nadir for output in January. After one of the world’s most successful vaccination rollouts, with more than half of adults now jabbed, the next quarter will feature gradual reopenings allowing such a revival to take hold.

How the economy proceeds from there remains a matter of suspense for citizens and policy makers alike. At its decision last week, the Bank of England contained any sense of optimism by saying the outlook remains unusually uncertain. Its chief economist, Andy Haldane, was bolder: he declared that “we are in for a rapid-fire recovery.”

One shadow remaining over Britain’s prospects is its ability to reestablish trading relationships disrupted by its exit from the European Union. An agreement with the U.S. would help there, and that’s just what Trade Representative Katherine Tai, and her U.K. counterpart Liz Truss, will discuss in a call on Monday.

Elsewhere, U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell testify to Congress and global policy makers including European Central Bank President Christine Lagarde, BOE Governor Andrew Bailey and Bank of Canada chief Tiff Macklem discuss central bank innovation at a four-day conference organized by the Bank for International Settlements. Meanwhile, at least 15 rate decisions—including Mexico, South Africa and Switzerland—are scheduled.

Investors will be watching as Yellen and Powell testify before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday for quarterly Cares Act hearings, during which they will likely discuss the state of the U.S. economy and the role of fiscal and monetary aid in the pandemic recovery.

Filings for U.S. unemployment benefits probably stayed elevated last week

On the data front, new and existing home sales as well as personal income and spending figures will probably show weakness, due to the impact of inclement winter weather on economic activity in February. Economists expect the slump to be short-lived. The Bureau of Economic Analysis will also release it’s latest revision of fourth quarter 2020 GDP, which was last reported at an annualized 4.1%.

More upbeat flash PMIs and German Ifo confidence numbers may not be enough to distract from Europe’s chaotic vaccine rollout, which is likely to be a topic of a summit of European Union leaders.

ECB officials including Chief Economist Philip Lane and Vice President Luis de Guindons speak throughout the week and may reiterate Lagarde’s mantra that euro-area governments must make sure to roll out their joint spending plan on time to ensure the region’s recovery from the coronavirus pandemic.

Switzerland’s central bank will publish its 2020 currency intervention tally and conduct the first rate decision of the year, with officials expected to maintain current policy settings with the world’s lowest interest rate.

Counterparts in Hungary, Iceland, the Czech Republic and Morocco are also expected keep their monetary stance unchanged.

That’s likely to be the case too across Africa, where Ghana’s central bank will probably hold its key interest rate for a sixth straight meeting on Monday as it monitors how new tax measures and higher utility fees affect inflation. In Nigeria, policy makers are likely to also keep the key rate unchanged, even with inflation at a four-year high.

South Africa’s central bank, which has signaled interest-rate hikes later this year, will probably refrain from doing that already on Thursday as the economy’s recovery from its biggest contraction in a century remains fragile.

Meanwhile, investors will be keeping a close eye on Turkey, where two days after a bigger-than-expected increase in interest rates, President Recep Tayyip Erdogan removed the country’s third central bank governor in less than two years, and replaced him with an advocate of lower rates.

South Korea kicks off the week with early trade data for March that should offer a clearer sign of how global trade is recovering without the distortions of the previous two months.

The Tokyo region is set to emerge from its state of emergency this week. Preliminary PMI data for March out Wednesday will give an indication of recent activity in Japan’s manufacturing and service sectors, while early inflation figures from the capital will also show the likely direction of nationwide prices.