With the U.K. economy still struggling to pick up speed, the sterling took a beating on Tuesday as data released by the Office for National Statistics showed that economic activity had continued to weaken in January. The data follows news last week that unemployment rose to its highest level in over a decade, raising fears that the U.K. is heading for a full-blown recession.
The fall in the value of sterling has made British goods more affordable abroad, but it has also made British exports less competitive and given U.K. companies less chance to make money. The weakness in the U.K. economy is likely to put more pressure on the Bank of England to continue its stimulus measures, including pumping billions of pounds into the economy through quantitative easing.
The data released by the ONS showed that economic activity had continued to weaken in January, with construction falling by 0.7% and manufacturing decreasing by 1%. The figures were slightly better than those released last month, which indicated that economic activity had reduced by 0.5%.
Inflation rose slightly to 2.7%, while unemployment rose by 38,000 to 1.51 million, and the number of people in employment decreased by 102,000.
Sterling Falls as Euro Gains and Dollar Swoons
The British pound has been in a downward spiral recently as investors bet on more robust eurozone growth and the U.S. dollar gaining strength. The currency lost nearly 1% of its value against the Euro on Thursday alone while also sinking against the dollar by over 1%. The slide comes after data released earlier this week showed economic activity in the Eurozone weakened in February, adding to worries that the bloc is sliding into a recession. Meanwhile, the sterling’s decline has been partially attributed to rising global equity markets and more cautious investment flows into GBP-denominated assets.
GBP Jumps on softer data in Briefing Notes
The British pound jumped against the U.S. dollar in early trading on Thursday after data from the country’s official statistics agency showed that economic activity had weakened in the third quarter of the year. The data raised concerns about whether the U.K. economy could withstand a Brexit-related slowdown, and this news supported the sterling. Sterling was also boosted by comments from Bank of England Governor Mark Carney that he did not see a strong case for raising interest rates at this stage. In other news, Eurozone inflation remained steady at 0.8% in October despite weaker-than-expected consumer price inflation figures, suggesting that there is still some slack in the economy and that the ECB may not increase interest rates at its next meeting on Nov 10.
Pound Retreats Against Other Currencies as Data Shows Weakness
The pound slid against the other major currencies on Friday as data showed economic activity in the U.K. has weakened. The Office for National Statistics said that growth in the first quarter was below market expectations, with import and export growth slowing markedly. The data will likely add to concerns about the U.K.’s economy, which is already struggling following Brexit. The pound was down 0.9% against the Euro and 1% against the dollar on Friday. This follows a fall of 1.4% against the dollar on Thursday. The Sterling has been declining against other currencies since the early year when it became clear that Brexit would be more complex than initially expected.
Sterling Slides As Data Shows Economic Activity Weakens
The British pound sterling slid against the U.S. dollar on Thursday as data showed economic activity weakened in the eurozone and China. The pound was down 1.5 percent at $1.3175 by 0750 GMT. The currency has lost about 9 percent of its value this year, making it one of the worst-performing currencies in the world.
“UK GDP Growth Slows to 0.4% In Q4” – The U.K.’s economy shrank by 0.4% in Q4, missing economists’ expectations for a 0.5% growth rate, according to data from the ONS released on Thursday morning (Jan 9). This marks the fourth consecutive quarter where UK GDP has decreased and signals that growth is starting to slow down across most of Europe’s largest economies…
Weak exports are primarily to blame for the fall in UK GDP growth, with goods exports contracting by 2% while services exports increased marginally… The weakness across most industries shows that businesses need to invest more, which could lead to long-term problems if no improvements are seen soon…
While there are some positives within these figures, such as household spending increasing by 2%, they don’t outweigh the negative news coming out of other European economies which suggest that the overall eurozone economy is slowing down… Sterling’s fall reflects worries over whether or not Britain will be able to maintain its place among the world’s leading economies despite these worrying signs.
The British pound sterling slid against the U.S. dollar on Thursday as data showed economic activity weakened in the eurozone and China.
What does this mean for the economy?
The Office for National Statistics (ONS) data shows that U.K. economic activity weakened in the third quarter of 2016. This is likely to have consequences for the economy, with GDP likely contracting by 0.2% compared to the previous quarter and 2.3% compared to Q3 2015. This follows several weak surveys which have pointed to slowing growth in the U.K. economy over recent months. Sterling has slid against other currencies, with the pound down 1.7% against the Euro and 1.9% against the U.S. dollar. While it is still too early to tell what these numbers will mean for future economic activity, they are likely to cause concern among those forecasting a sustained upward trend for sterling this year.
What are the potential consequences of the data?
The data released by the U.K.’s Office for National Statistics (ONS) on Friday showed that economic activity in the country slowed down in the first three months of the year. This follows several other surveys that have conducted a decline in business and consumer confidence. Inflation also increased slightly to 2.6%, above the 2% target set by the Bank of England.
This news has caused sterling to slide against other currencies, with the pound dropping 0.8% against the U.S. dollar and 1% against the Euro. Some economists interpret this as a sign that interest rates will need to be raised sooner than expected, while others say it is just a blip in an otherwise strong economy.
While some commentators are predicting further weakness in economic activity, others Sare highlighting that this could be a temporary setback and that things will ultimately return to normal. However, if this trend continues, it could have severe consequences for Britain’s economy and its currency.
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