Despite all the problems and global uncertainty, the year ended on a good note. In particular, US indices closed at record levels, new stimulus packages were approved by both the ECB and the Fed, Joe Biden won the election, and the question of the future after Brexit was finally closed.
In this way? can we say that from now on we will have months of stability? Unfortunately not, and this is because even with the vaccine, COVID-19 continues to spread around the world, including with new strains and new risks.
It is therefore unlikely that we will return to “normal life” anytime soon, and new restrictions in both Germany and the UK prove this. The main danger in this situation is that Europe is facing a double recession. With infection rates still high, the chances of a dramatic recovery in the first months of 2021 remain slim.
In the case of the United Kingdom, the Bank of England will be forced to act not only in order to mitigate the negative consequences of the new wave of infection, but also the consequences of Brexit. Since the British voted to leave the European Union in 2016, the pound sterling has lost most of its value against the dollar.
Meanwhile, the latest data on activity in the UK services sector indicates a drop. In particular, the UK services PMI was revised to 49.4 in December from an expected 49.9. Thus, the UK has seen a two-month decline after four months of improvement.
Against this background, it is not surprising that optimism for the British pound began to wither. It is also true that the pound could benefit from the weakness of the dollar caused by the Democratic victory in the US Senate elections.
In addition, it is worth mentioning that Morgan Stanley is planning to transfer assets worth about 100 billion euros from the UK to Frankfurt. Finally, Brexit has moved 3,517 financial sector jobs to Paris since the UK voted to leave the EU in 2016.
Therefore, after Brexit, even with an agreement, there is still a lot of uncertainty in the relationship between companies and the financial industry. Meanwhile, the financial industry accounts for about 80% of the British economy. This, in turn, indicates that it will take longer for the UK to return to pre-crisis levels. If the number of cases does not decrease and the vaccination campaign is not accelerated, the British pound sterling may struggle to maintain its position.