Sterling lost three cents (1.9%) to the dollar, as a weak UK quarterly GDP figure abruptly halted the pound’s recent rally.
- The greenback gained the most daily value against the pound in a month as the UK’s economy unexpectedly contracted in the third quarter, giving the Bank of England more reason to expand emergency measures to spur growth.
- It is the first time UK gross domestic product has contracted for six consecutive quarters, since quarterly figures were first recorded in 1955.
- The pound fell more than a cent against the US dollar following the release of the figures, losing 0.6% in two minutes, with traders particularly concerned that the UK may turn out to be the only major economy still in recession.
- The unexpected decline in the services sector was the key factor behind the drop. The UK economy’s reliance on the service sector, and financial services in particular, may be the reason why it is still in recession when partners such as France and Germany exited earlier in the year.
- This suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, which will put further pressure on the pound.