News released earlier today has shown that the UK is officially in a state of recession sparking a sharp decline in the Pound.
The news means that Britain is facing its first double dip recession since the 1970’s.
The shock news comes after many analysts were predicting modest growth of 0.1% for the UK after the release of strong PMI figures and the Bank of England’s decision to reduce Quantitative easing. As a result the Pound has seen a significant decline, as the market absorbs the news.
The GDP figures for the last quarter came in at -0.2. First quarter construction output was down by 3%, the biggest drop since the first quarter of 2009, and compared with a drop of 0.2% in the last quarter of 2011. The figures show that the UK economy, in volume terms, was flat in Q1 2012 compared to Q1 2011.
Chancellor George Osborne said “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”
He says paying off the debt is harder as Europe nears recession and notes that the UK faces the “Biggest debt crisis of our lifetimes”.
The market’s reaction has seen the Pound weaken steeply against all of the 16 most actively traded currencies causing Investors to flee UK denominated assets.
Elsewhere, the Euro strengthened to a three week high against the Dollar. Lower euro zone bond yields and the expected decision of the US federal bank to keep interest rates at low levels all contributed. The Euros growth is expected to be limited due to its remaining vulnerable to the problems facing the Eurozone.
The Pound has dropped by 0.4% against the Euro and 0.3% against the US Dollar.
The Pound to Euro exchange rate is currently trading at 1.216
The Pound to US Dollar exchange rate is currently trading at 1.612
The Euro to US Dollar exchange rate is currently trading at 1.322
Comments are closed.