While the weather may be more suited to a hot cocoa than a cold beer, the UK is finally, if still cautiously, opening up its service sector. Photographs of Brits huddled under insufficient umbrellas around beer garden tables and reclaimed high street pavements are, however, likely pertinent, not just for societal reclamation, but importantly, for the economic recovery.

At this week’s Bank of England (BoE) meeting (and accompanying Monetary Policy Report – formerly known as the Quarterly Inflation Report), the BoE echoed the more positive tone of the nation and raised the growth forecast for 2021 to an impressive 7.25%, from just 5.00% in February. Indeed, perhaps the most notable amendment to the forecasts between February and May was the fact the spike in the unemployment rate that the BoE (as well as the Office for Budget Responsibility and other forecasters) had expected has gone. Instead, it appears that the extension of the furlough schemes has dovetailed perfectly with the timely reopening of the economy such as to prevent the feared sectoral layoffs.

On inflation, the central projection is that CPI is above target at the end of the year (in part due to energy effects, but also a function of returning demand), but then falling back to target, as excess demand is met by improved supply dynamics. This pattern is also mirrored in the growth trajectory, as fiscal boost is reversed in later years.

The BoE Governor talked about the very different dynamics to the current crisis than those of the global financial crisis (GFC), and repeated comments from earlier in the pandemic that recessions that are caused by financial crises have more lasting consequences – hence the more rapid rebound expectations this time round. This is an important comment for us. We have maintained the view that the recovery from the covid pandemic will be very different from the recovery from the GFC.

None on the Monetary Policy Committee are more confident in the potential economic rebound in the UK than the outgoing Chief Economist, who at this week’s meeting dissented in the decision to maintain the target stock of QE assets at GBP 875B, in favour of reducing that target to GBP 825B. The Chief Economist has long argued for a larger and more extended period of excess demand with a supply/demand balance that likely maintained upward price pressures. In part, as the Bank Governor reiterated, the key difference between the picture in February to May comes from higher real yields, which are reflective of higher growth expectations. The extent and durability of this rebound will be closely watched; time will tell if the outgoing Chief Economist will be viewed as prescient or simply optimistic.

Indeed, there are a number of reasons to be more positive about the UK of late. As the FT pointed out earlier in the week, there is a case to be made for a reduction in the Brexit discount on UK assets as a function of trade/political uncertainties, now that the EU-UK trade deal has been ratified by the European Parliament, particularly if opportunities from the vaccine rollout success and reopening momentum – the start of a very strong rebound in economic activity – are considered.

Finally, a lot has been made recently about the political risks to the UK from ‘wallpapergate’ and from the potential for a Scottish Independence Referendum (IndyRef2). In my mind, the risks have been significantly overplayed. The results from the Scottish parliamentary elections will come in over the weekend, and we will see how the results play out in relation to the symbolically important SNP majority, and more importantly the subsequent noises about IndyRef2. For now, however, we are inclined to view the UK and indeed GBP through a more positive lens.

Tonight, I may well celebrate this with a cold beer (from an actual pub!) …and a warm jacket. A welcome change after a long cold lonely winter and I say it’s alright...