Pound hits highest level against euro in over a year: Britain set to surge as figures show economy fared better than feared last year
The pound hit its highest level against the euro for more than a year after it emerged that the British economy fared better than feared last year.
Sterling climbed as high as €1.1756 – its strongest level since February 2020 – as revised figures from the Office for National Statistics (ONS) showed output recovered faster than thought in the second half of the year.
Gross domestic product (GDP) fell by 9.8 per cent across the whole of 2020 – slightly better than the previous estimate of 9.9 per cent but still the biggest slump since the Great Frost of 1709.
Sterling climbed as high as €1.1756 as revised figures from the Office for National Statistics showed output recovered faster than thought in the second half of the year
The recession was driven by a 19.5 per cent contraction between April and June when the first lockdown hit. But the bounce back in the second half of the year was firmer than previously thought.
And the successful rollout of Covid vaccines in the UK – while Europe struggles – has set the scene for a stronger recovery in Brexit Britain than the EU.
As well as making gains against the euro, the pound rose back above $1.38 against the dollar.
In a further boost, a report from the Institute of Directors shows confidence in the economy among business leaders is the highest since just after Boris Johnson’s 2019 election victory.
Tej Parikh, chief economist at the IoD, said: ‘After an enduring year defined by challenge after challenge, the clouds are finally parting for businesses.
The roadmap to reopen the economy, the successful vaccine rollout, and the Budget, have all buoyed directors’ confidence in the first quarter.
Having plumbed new depths of pessimism amidst the pandemic and Brexit uncertainty last year, firms are now embracing a cautiously optimistic outlook for the year ahead.’
The ONS figures showed households are sitting on the biggest pile of savings on record.
The household savings ratio – or how much people are squirreling away relative to their income – jumped to 16.1 per cent by the end of 2020, up from 6.8 per cent in 2019.
Julian Jessop, of think-tank the Institute of Economic Affairs, said: ‘The revisions show the UK economy had a bit more positive momentum in the second half of last year than previously thought.
‘As the Government eases lockdown restrictions, it is likely that the UK economy will bounce back more strongly than many are expecting. This will help to repair the public finances, too.’
Chancellor Rishi Sunak has pumped in support throughout the pandemic, through schemes such as furlough, to support incomes and prevent mass job losses.
This has helped households, whose members have not been paying for activities such as travel, meals out and holidays, to tuck away more than £150billion.
Ruth Gregory, senior UK economist at Capital Economics, said: ‘We’ve assumed households just go back to saving the same share of their income as they did before the crisis. That is enough to drive a rapid economic recovery.
‘If households spent all the money they have saved since the Covid-19 crisis began, this could boost GDP to the tune of 6.5 per cent.’