UK savings on the rise
The UK savings rate has risen to 19.1% in Q1 versus 16.1% in Q2 according to the UK’s Office for National Statistics. The UK’s savings rate measures the income that households have saved vs a proportion of their disposable income. This latest print is second only to the jump to 25.9% in April and June last year when the first round of COVID-19 lockdowns landed. This latest print is the second-highest savings rate on record.
High savings rate is a promising sign for an early UK boost, but tail risks remain.
The UK’s fast vaccination rate and the seemingly broken link between cases and hospitalisations mean that the GBP should see a boost between now and the end of the year. Yes, the BoE has focused on the downside risks. Perhaps there is a hint of caution here because the impact of Brexit has at least partially been concealed by the COVID-19 crisis and the UK balance of payments is still in deficit. This deficit means that the UK imports more goods, services, and capital than it exports. So, it is borrowing from other countries to pay for its imports. If this continues over the longer term it means that the UK will need to go into debt to pay for that consumption.
GBP vs AUD
One nice potential trade setting up is that as the UK looks like coming OUT of restrictions on July 19 Australia is heading back INTO restrictions. A low vaccination rate in Australia, combined with the rapidly spreading delta variant means that Australia has a battle on its hands to try and hold back the virus. The RBA meet this week and that is going to hunker down for another financial fight. Therefore, on the balance of probabilities, GBPAUD makes sense.