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RationalFX : Economic recovery looks bleak

RationalFX : Yesterday Rishi Sunak unveiled future plans for UK spending, painting somewhat of a bleak picture for the road to recovery.

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The update confirmed that GDP will contract by 11.3% in 2020 and the government deficit was around 19%. In addition to this, UK borrowing will hit an all-time high with almost 400 billion being needed to combat the COVID-19 emergency. This is the country’s highest budget deficit outside wartime with Sunak quoted saying ‘our economic emergency has just begun’.

To put this into perspective, this 19% deficit will be almost double the level reached after the global financial crisis of 07/08. However, this deficit should not come as a surprise to us Brits. The government have been continuously spending in the hope to keep the economy in a strong position.

With multiple stimulus packages already in place and plans for more to come, Sunak must now look for ways to begin the process of minimizing this deficit. The office for budget responsibility said that the economy will not get back to pre covid levels until 2022. This could be even later should the UK fail to agree a post Brexit trade deal.

Looking at Brexit, negotiations are still ongoing as we approach the final deadline. Reports suggest that EU counterparts will not extend past the proposed date. While this has been the case previously, both sides ultimately have always agreed to an extension knowing that a no deal is detrimental to both parties. This being said, Michel Barnier warned David Frost that if the UK does not compromise on the key issues holding the deal back, then he will ultimately pull out of negotiations in London this weekend.

Should he do so, it puts us in a compromising position with only 36 days to go. Von der Leyen was quoted saying ‘ These are decisive days for negotiations with the UK, but frankly, I cannot tell you if in the end there will be a deal’. Fisheries, state aid and governance are still yet to be decided on. With both sides still sticking to their red lines, markets will be headline driven as we move into the weekend.

Finally, today the UK government will outline new lockdown measures set to be introduced from December 2nd. Measures will move back to a localised approach, with those areas with the highest infection rates set to face the toughest restrictions.

Key announcements

None

Source : ETFWorld.co.uk

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