Six months ago, we laid out the uphill battle that GBP faced in the aftermath of COVID-19: Sterling has a Mountain to Climb with Bad Weather Forecast Ahead.
The UK had shed a staggering 21% GDP and, with no vaccine in sight, had no clear path to reopening the economy. The furlough scheme was simply a postponement of inevitable job losses, while measures such as ‘Eat out to help out’ were well intentioned but akin to putting a plaster on a critical injury.
On top of this was the looming New Year’s Eve deadline for Brexit. The ‘no-deal’ scenario weighed heavily on GBP throughout the last few months of 2020 — it was pushing below 1.08 against EUR.
With no-deal now firmly off the table, 2021 has brought with it a change of scenery for GBP. Furthermore, the UK’s progress with the vaccination programme compared with European nations has caused GBP to gain approximately 5% against EUR in just two months.
The UK has vaccinated over 22m people (approximately a third of the population) whereas France has managed a comparatively paltry 3.5m (5% of population).
Not only is the EU lagging in terms of vaccination progress but they are also seeing worrying resurgence in COVID rates amongst eastern European nations. Slovakia, for example has the highest death rate in Europe and is now having to export patients to Germany because their critical care has been overwhelmed.
If the UK manages to maintain the lead it has grown in vaccination numbers, then it is reasonable to expect the economy to return to a semblance of normality much sooner than the EU’s. This expectation is a major support for GBP while the Eurozone toils behind. It suggests that, in the short to medium term, GBP has a much rosier outlook than it did six months ago.