UK GDP figures have been released this morning showing a -0.2% contraction indicating the UK could currently be in recession. To officially be in recession there needs to be 2 consecutive quarters of negative growth, the fact we have now had one negative quarter means that should the start of this year continue in the same way as 2011 ended we will officially be in recession which is likely to only mean bad news for Sterling exchange rates. We have recently seen the best exchange rates for Sterling Euro in the last 16 months however this news this morning has led to Sterling weakness and the exchange rates dropping.
At the same time of the GDP figures being released the Bank of England (BoE) minutes were also announced and they showed the decision to keep both UK interest rates on hold and potentially more importantly Quantitative Easing (QE) on hold by 9 votes to 0. The fact the BoE kept QE on hold has helped reduce Sterling’s losses this morning as there were some calls for more QE which has in the past caused the Pound exchange rates to fall. As we are not facing more QE it is seen as good news for the UK economy but should we fall officially into recession then there is a strong chance the central bank will have to intervene again with more QE to help spark more growth.
As we now know the UK is close to entering recession every economic data release will be watched more closely than usual to see how the UK economy is performing, this could mean the currency market movement is more volatile than usual. To stay in touch with all the movement in the markets speak to one of our currency brokers on 0800 328 5884 or email firstname.lastname@example.org