What’s in-store for the pound in 2021
The pound has been performing well against the Euro so far this year and is close to 9-month highs.
However, we are currently in a 3rd lockdown and although vaccines are being rolled out at a faster rate, we are also discovering new strains. This coupled with the knock-on effects of the UK leaving the EU and there are plenty of news items that could see the GBP/EUR rate fall from these current levels.
Here we take a look at what could impact the pound in the months ahead.
1. How urgent is the second COVID-19 vaccine dose?
The UK's delay of the second jab is only one issue weighing on sterling. Evidence coming from Israel, the world's leader in vaccination as you can see from the graph below from Our World in Data, suggests that a high level of defense against the disease is achieved only after the booster (2nd) jab has been administered. Will reaching more people with a lower immunization level be sufficient? Time will tell, but doubts are already taking their toll on sterling that the lower level of immunization may not be efficient enough to keep people safe.
There have been a lot of concerns about the effectiveness of the current vaccine’s ability to protect people against the South African and Brazilian variants of Covid-19. Whilst the British Covid-19 strain succumbs to vaccines, there are signs that the new variants are more lethal than the normal type of the virus and may be resistant to the jabs currently available.
Delays in the roll-out of the second dose and the efficacy of the vaccine against the new strains, both could extend the lockdown period and put more pressure on the pound.
2. Post-Brexit
Investors mostly forgot about the saga after the EU and the UK reached an agreement on Christmas Eve – but the friction is becoming more apparent. More and more businesses are feeling the impact of Brexit from an increase in tariffs and VAT, hold-ups at ports, EU business ceasing to do business with UK companies due to the licensing now required, and overall disruptions to the supply chain.
Officials at the Department for International Trade advised exporters to set up shop in Europe to avoid border issues. Opening separate companies in the bloc would allow them to circumvent paperwork and taxes resulting from the exit.
3. Scottish referendum
Scotland is pushing for another independence referendum. The last opinion polls show more voters now favour independence. A survey conducted by SavantaComRes on behalf of The Scotsman found that 51% would be in favour of an independent Scotland.
Brexit has been a deciding factor, those who are pro-Brexit are more likely to oppose the referendum, whereas pro-referendum supports want the freedom to make their own decisions and join forces again with the EU. Nicola Surgeon and the pro-referendum supporters could cause another headache for Prime Minister Boris Johnson in the months ahead. The last time we saw a vote for Scottish independence the Pound fell substantially, watch this space!