UK ON TRACK FOR RECORD GROWTH AS THE BANK OF ENGLAND UPGRADES ITS OUTLOOK

UK ON TRACK FOR RECORD GROWTH AS THE BANK OF ENGLAND UPGRADES ITS OUTLOOK

This week we got the much expected news from the Bank of England that the economy is forecast to grow quickly this year and they don’t plan on doing anything to stop it. The headlines got carried away with lines like “fastest growth since Second World War” but this needs some context. That the recovery is on track is, of course, positive but GDP shrank by 10 per cent in 2020, so even growth of 7.5 per cent leaves us 3 per cent behind where we were and 4.5 per cent behind where we should have been.

Elsewhere, a shudder went through the pharmaceutical industry after the US confirmed it supports the idea of suspending patents on coronavirus vaccines. This isn’t all its cracked up to be, however. This sounds positive but the most effective vaccines using mRNA technology are incredibly complicated to make and only a few companies and countries possess the necessary technology. Additionally, the US is currently restricting the export of the ingredients required, so this action is largely performative. We’ll see if more concrete steps like actually exporting vaccines follow.

UK: BANK OF ENGLAND FORECASTS FASTER RECOVERY

The Bank of England has forecast the fastest rate of economic growth in 70 years with a predicted growth rate of 7.25 per cent for the UK economy this year. The upgrade from the previous forecast of 5 per cent in February is due to the rapid progress with the Covid-19 vaccine roll-out and easing of restrictions as consumers begin to spend some of the savings accumulated under lockdown. The current inflation rate has remained at 0.7 per cent, below the 2 per cent target.

Despite the predicted growth, the Monetary Policy Committee kept interest rates at a historic low of 0.1 per cent. The bank has also maintained its bond buying programme at £150bn for this year. As it is slightly ahead of target it said monthly purchases could begin to slow but warned this is not an indication that it is changing policy. UK government bond yields rose after the announcement, as prices fell slightly, but have since returned to their previous level as markets reacted evenly to the announcements.

US: YELLEN’S INFLATION COMMENTS RATTLE TECHNOLOGY STOCKS

US Treasury Secretary Janet Yellen’s comments on interest rates caused more volatility high-growth tech companies shares this week. In a discussion about the Biden administration’s plan for $4tn infrastructure and welfare spending, and without specifying a timeframe, Yellen said “it may be that interest rates will have to rise somewhat” to prevent the economy overheating. These increases, she said, would be “very modest”. The comments were enough to send many technology companies down sharply as higher interest rates reduce the valuations that some investors use to evaluate growth companies. Yellen immediately tried to at least partially walk back on her comments, saying this was neither a forecast nor recommendation for an interest rate hike.

Inflation, or the fear of inflation, also featured in Berkshire Hathaway chief executive Warren Buffett’s annual shareholder presentation. The veteran investor said the US economy is red hot and revenues have recovered strongly in many areas but warned that many of its businesses are already passing on increased costs to clients.

EQUITIES: BIDEN BACKS PLAN TO SUSPEND PATENTS ON COVID VACCINES

Pharmaceutical companies shares fell sharply after US president Joe Biden backed a plan to temporarily lift intellectual property restrictions to allow developing countries to manufacture cheap versions of Covid-19 treatments, including vaccinations, and speed up the global immunisation effort. Until now most developed countries had refused to sign up to the World Health Organisation’s plan.

The idea still faces opposition from many countries but the news was enough to hit the share price of many of the companies involved in vaccine production. The biggest reductions were seen in some of the companies developing new technology. German company BioNTech, which developed the technology used in Pfizer’s vaccine, was down 15 per cent by the end of Thursday and US company Novavax, which is also developing new technology, saw its shares fall 27 per cent. The commercial value of a successful vaccine was shown in Pfizer’s earnings update this week which saw revenues of $3.5bn from its new vaccine in the first three months of this year.