British Pound Sterling | Currency News Views and Outlook
British Pound Sterling: Currency will struggle yet further as it is confirmed the UK is deeper in recession than initially thought
- Category: British Pound Sterling
- Published on Thursday, 24 May 2012 09:32
- Written by Will Peters
The pound sterling (Currency:GBP) will find no help in the news that the recession is in fact deeper than initially thought by the Office for National Statistics. GDP fell 0.3% in the first quarter, a worse showing that the initial estimate of a 0.2% decline.
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The impact on the pound euro exchange rate was minimal though, GBP-EUR is 0.06 pct higher on Wednesday's close, GBP-EUR is at 1.2479.
The pound dollar exchange rate is 0.07 pct down at 1.5679.
The pound Australian dollar currency pair is 0.09 pct lower at 1.6080.
The GDP figures will only lend more weight to calls for more quantitative easing at the Bank of England - it is this increase in the supply of money that is the ultimate decider of sterling strength in the longer term.
As such, it is events at the Bank of England that are being watched closely by investors.
"The pound came under pressure after the UK May MPC minutes revealed a vote split of 8-1 against more QE (Miles for), but the vote was “finely balanced” for several members. Our UK economist notes that the main reason for not expanding QE in May was the inflation overshoot," says a morning currency note from UBS.
Many more reasons were offered for expanding the QE programme, however, such as Eurozone woes, sterling strength and spare capacity.
"In our view the BoE will hold off from another round of QE unless conditions in the Eurozone deteriorate substantially from here and/or the wholesale bank funding market seizes up again," say UBS.
UK April retail sales came in much weaker than expected, slumping 2.3% m/m for a 1.1% decline on the year.
That compares to March's revised figures of +2.0% m/m and +3.1% y/y.