I remember being glued to the daily briefings in mid-March after initially dismissing the early news with a ‘this will pass attitude’ – clearly Covid-19 was a different beast.  What I hadn’t expected was Chancellor Rishi Sunak’s announcement of the astonishing and unprecedented economic relief package for the UK.

History and understanding

This package announced on 20th March 2020 included grants to small businesses, access to alternative funding, deferred taxes, support for renters and additional financing for the welfare system.  Additionally, the Chancellor announced the scheme that most of us are now very familiar with and what this article will discuss; the Coronavirus Job Retention Scheme. Within this, the government agreed to pay for 80% of people’s wages so they can be furloughed rather than laid off to protect their jobs. This is one of the most important economic tools in recent history that has helped retain jobs in many of the business sectors that have been most affected by Covid-19. From 1st October, employers pay 20% towards furloughed staff’s wages and the government cover the remaining 60%.

The furlough scheme now ends on 31st October 2020 and will be replaced by the Job Support Scheme and the extension of Self Employment Income Support Scheme.  The Job Support Scheme is designed to protect jobs in businesses who are facing lower demand over the winter months due to Covid-19, to help keep their employees attached to the workforce. The scheme will open on 1 November 2020 and run for 6 months.

The employer will continue to pay its employee for time worked, but the cost of hours not worked will be split between the employer, the Government (through wage support) and the employee (through a wage reduction), and the employee will keep their job.

The Government will pay a third of hours not worked up to a cap, with the employer also contributing a third. This will ensure employees earn a minimum of 77% of their normal wages, where the Government contribution has not been capped.

Potential scenarios

According to government figures around 30% of the workforce across the UK was furloughed in May. The share of the workforce furloughed fell by more than half to 11% by mid-August.  These figures were supplemented by The ONS Business Impact of Coronavirus Survey, showing that the flow of employees off furlough has been steady, falling by 6% in late July and a further 6% in early August.

Recent research by the Chartered Institute of Personnel and Development (CIPD) & Adecco Spring Quarterly Report found 33% of employers planned to make job cuts by the end of September, shortly before the furlough scheme was due to end[1].  This is a 50% quarterly increase in the same number of companies expecting to make redundancies.

It will be no surprise that jobs are already being lost, with further expected as the furlough scheme ends.  One measure that paints a grim picture is the measure of people who are claiming benefits for being out of work, or on very low incomes.  Between March and August, the number of people claiming benefits rose to 2.7m, a rise of over 100% from previous levels.  This is primarily comprised of young people in the 16-24 bracket, who have been hit hard from jobs in the leisure, retail and hospitality industries that were unable to function during the initial lockdown.

Could it get worse? Probably.  A report from the Office for Budget Responsibility[2], gives its official view of what might happen to unemployment.

  • In its optimistic scenario, the unemployment rate peaks at 9.7% this year, and returns to pre-crisis levels in 2022.
  • In its least optimistic scenario, it peaks at 13.2%, in 2021, putting four million people out of work.

In either of these scenarios, you must assume this is injurious for the economy, expensive to maintain and hard to turnaround.  It has been suggested by some prominent UK billionaires (who shall remain nameless) that ‘we all need to get back to work’ and ‘create wealth’.  Whilst I don’t disagree that we need to create wealth, the path to recovery could be more laborious for us normal folk.  Perhaps the view is different and the perspective on the world is more distorted from the lofty heights of an Ivory Tower (or a superyacht)?

So what? What does this mean for FX?

By and large, the Pound is already volatile and has been since before the Brexit vote in 2016, trading for the most part like an emerging market currency.[3]  This means that we are more susceptible to big movements based on global risk events, rather than macroeconomic data.

I think there are a few questions to answer here: 

  • Are we going to be more affected as an economy than other G10 nations?
  • Does the UK have a framework that is conducive to people starting businesses in the future?
  • Are current businesses going to be given the support to flourish in the future?
  • How quickly can we replace the jobs lost during this time?

At Infinity International, we look to the financial institutions and their FX forecasts that are published on Refinitiv Eikon for a handle of the potential impact on the currency.

Our October forecast which provides insight to the high, mean and low predictions over 1, 3, 6 and 12-month basis and is taken from over 50 financial institutions.

Read our report: Infinity_FX Forecast October

What can your business do to reduce its risk?

If your business has currency exposure now or in the future, you may or may not have a hedging strategy and access to a range of tools which you utilise to manage this.  We understand that the world has become a little more uncertain and as we adapt, it will be necessary to review all areas of our businesses for efficiencies in cost and strategy.

Infinity International would be happy to offer a complimentary FX review of your current process to offer a fresh perspective and to highlight any opportunities for increased FX efficiencies.  If you would like to organise a time for an exploratory conversation, please contact us.

[1] https://www.cipd.co.uk/Images/labour-market-outlook-spring-2020_tcm18-76992.pdf

[2] https://obr.uk/coronavirus-analysis/

[3] https://www.cnbc.com/2020/06/25/sterling-should-be-treated-like-an-emerging-markets-currency-analysts.html#:~:text=The%20British%20pound%20is%20behaving,permanently%20change%20sentiment%20around%20sterling.

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[1] https://www.fxstreet.com/news/eur-gbp-to-soar-to-097-on-a-no-deal-brexit-scenario-danske-bank-202008280723

[2] https://www.exchangerates.org.uk/GBP-EUR-spot-exchange-rates-history-2019.html


This blog post is intended to provide you with information on the services Infinity International Limited (IIFX) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates provided therein are for indicative purposes only and are not intended to give an accurate reflection of current currency exchange rates or to predict future movements in currency exchange rates. IIFX is a company registered in England with registered number 06333730 and registered address at Third Floor, 24 Chiswell Street, London, United Kingdom, EC1Y 4YX. IIFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 (FRN: 567835) for the provision of payment services. IIFX is authorised and regulated by the Financial Conduct Authority in the conduct of designated investment business (FRN: 671108).