British pound sterling: UK currency smacked lower by an absolutely shocking set of GDP figures, construction undergoes a 'disaster'

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Published on Wednesday, 25 July 2012 09:10

Written by Will Peters

International Money Transfers at our sister site

Investec chief economist Philip Shaw, who predicted a 0.4 pct fall in GDP, believes the construction sector has suffered a "disaster" in the last few months. How right he was.

The pound sterling (Currency:GBP) this morning faces the real prospect of more aggressive action over at the Bank of England - the Bank will feel like it will have to do more to aid the UK economy following a dire set of GDP figures just out.

In the wake of the report that the UK economy shrank by 0.7 pct in the last quarter we see the pound euro exchange rate is 0.65 pct lower on a daily basis at 1.2768.


The pound dollar exchange rate is 0.11 pct down at 1.5486.

The pound Australian dollar rate is 0.55 pct down at 1.5081.

As mentioned, analysts are digesting the latest GDP figures from the UK economy.

The 0.7 pct drop in GDP is the biggest fall in quarterly UK economic outlook since the first three months of 2009; the "consensus view" is that Britain's economy shrank by 0.2 pct in the last three months.

On a year-on-year basis, the UK economy is 0.8 pct smaller than 12 months ago.

Britain's service sector shrank by 0.1 pct in the quarter while industrial output fell by 1.3 pct.

Construction output fell by 5.2 pct - an eye opener. Investec chief economist Philip Shaw, who predicted a 0.4 pct fall in GDP, believes the construction sector has suffered a "disaster" in the last few months.

How right he was.

So the issue now is whether we can see a sharp and convincing comeback in the next set of figures.

Indeed, growth is expected to bounce back in the third quarter as the lost production from the Jubilee Bank holiday is made up, the sun shines and the Olympics get underway in London. Flimsy stuff really.

If we don't see an improvement be sure that the Bank of England will likely cut interest rates below 0.5 pct and/or increase quantitative easing yet further.