GBP/USD falls after release of disappointing UK GDP data

March 27, 2013 - Written by James Fuller

STORY LINK GBP/USD falls after release of disappointing UK GDP data

Sterling has fallen to the 1.50 region against the US Dollar after official data confirmed that the UK economy contracted in the fourth quarter raising concerns that the UK is heading for a triple dip recession.

The Office for National Statistics announced that UK Gross domestic product contracted by 0.3% in the final quarter of 2012, in line with economist expectations and preliminary forecasts. The ONS also said that economic growth for 2012 was revised downwards to 0.2% from a preliminary estimate for 0.3% growth.

The bad weather and the loss of a working day caused by the Diamond Jubilee may have reduced output during the second quarter. The adverse wet and cold weather is being blamed for a reduction in the amount of consumer spending. In contrast, the London 2012 Olympic and Paralympic Games in the third quarter supported output, and this may have been partly responsible the contraction in the fourth quarter.

Against the Euro the Pound is higher as risk aversion continues to harm the single currency. The Euro remains under pressure amidst a combination of concerns. Worries over the stability of the Eurozone region, and a possible bank run that could be created as a result of the Cyprus bailout are weighing heavily upon the currency.

Investors remained concerned that the bailout deal for Cyprus could set a precedent for future bailouts in larger euro zone states, with big bank depositors and senior bond holders forced to suffer losses.

As a result of the Cyprus problems investors turned to the US Dollar for safety. The single currency has weakened by 0.68% against the ‘Greenback’.

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