Brexit in the week from 23/3 – 29/3/2020
Johnson caught the coronavirus. Fitch downgraded Britain's rating. PMI data in Britain fell to historically low levels in March. Negotiations on the Brexit Trade Agreement have been postponed due to the coronavirus pandemic. The risk of Brexit without a trade agreement as of December 31, 2020, thus increases because Britain does not want to extend the deadline. Yet the pound surprisingly strengthened last week. More details are in our article.
Last week, Fitch Ratings has downgraded Britain from AA to AA- with the negative outlook because of uncertainty about the outcome of the EU-UK trade agreement and the weakening of public finances due to the coronavirus pandemic
. Fitch expects the UK economy to decline by 4% thanks to coronavirus. At the same time, the agency expects the government debt-to-GDP ratio to increase gradually to over 100% after 2025.
Due to the negative outlook, further downgrading may follow. Downgrading is generally negative for the pound.
No negotiations on the EU-UK trade agreement have taken place due to the coronavirus pandemic. On Friday, Prime Minister Boris Johnson announced that he was also infected with coronavirus, so he works in isolation. There are already more than 19,500 infected in Britain, and according to some reports, it may take up to 6 months for Britain to return to normal life.
On Tuesday, Britain reported PMI data on purchasing managers’ activity, which clearly showed a deterioration in economic activity. In the manufacturing sector, PMI reached level 48 compared to the previous value of 51.7. In the service sector, which is very important for Britain, the PMI reached only 35.7 (the previous value was 53.2), which is historically the lowest value. By comparison, in the 2008 crisis, PMI in services reached a minimum of 40.1.
The CPI, which was reported on Wednesday, reached 1.7% (the previous figure was 1.8%). The goal is to keep the CPI around 2%. The Bank of England expects CPI to decline by 1% in March. However, the cheap pound should gradually support price growth. Retail sales in the UK fell by -0.3% in February.
The Bank of England left its rate at 0.10% on Thursday. The asset purchase program remains at £ 645 billion. The Bank is ready to continue increasing the QE program if necessary.
The reason why the GBPUSD strengthened last week was extremely weak data from America. On Thursday, the US reported a record increase in unemployment, with the number of applicants who filed for unemployment insurance reached almost 3.3 million
. In the crisis 2008-2009, the maximum number was 663 thousand.