Sterling Takes Heavy Losses As UK Falls Back Into Recession

By David Schutz,

THE TAKEAWAY: Negative UK GDP growth in Q1 2012 -> Sterling under pressure as data diminishes confidence

Great Britain’s Gross Domestic Product contracted in the first quarter, pushing the UK into its first double-dip recession since the 1970s. The report is expected to increase pressure on UK officials, most important PM David Cameron who has faced criticism for promoting austerity instead of government stimulus.

GDP shrank 0.2% from the fourth quarter of 2011, when it shrank 0.3%, the UK stats bureau said today. A technical recession is defined as two successive quarters of contraction. The median forecast by a team of economists envisioned the economy growing 0.1% in Q1 2012.

Government officials recently quoted as hoping for an upbeat release today stand to be disappointed, but they shouldn’t be surprised. The Bank of England last week reckoned that GDP results in both Q1 and Q2 may register a recession, saying growth could contract because of weak construction during the Jubilee holiday season.

Sterling weakened against the Euro and US Dollar after the release. Cable dipped sharply and as of this report was trading towards daily resistance levels by 1.6075.
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