Today figures released by the office of national statistics have confirmed that the UK is back in recession and it’s worse than initially feared.
The UK is in its second recession since the beginning of the global financial crisis in 2008 and its first double dip since the 1970’s. The British economy contracted by 0.3% between January and March which is worse than the prediction of 0.2%. It’s the first annual decline of GDP since 2009.The news has raised fears that the Bank of England will increase its quantitative easing programme after holding it at 325billion this month. The exchange rate of the pound is sure to weaken as a result.
“The economy is not recovering properly and with the uncertainty over Europe hanging over the outlook as well, our suspicion is the MPC will sanction further QE at some point later on this year,” said Philip Shaw, economist at Investec.
The figures will make uncomfortable reading for British finance Minister George Osborne, who has vowed to press ahead with harsh austerity measures to curb Britain’s debts, despite mounting criticism that spending cuts will slow a recovery.
Exports also suffered: the trade deficit rose to 4.4 billion pounds, and net trade shaved off 0.1 percentage points from GDP.
“The composition of expenditure looks worrying: household consumption was weak with government consumption the main driver of domestic demand. Government spending is unlikely to be a sustainable driver of growth,” said Simon Wells, economist at HSBC.
In Europe the 18th emergency meeting of European leaders took place. Greece, Eurobonds and a long term plan for growth were the main talking points. The leaders spoke for six hours and still no decisions were made, those have been put off until yet another summit at the end of June.
The indecisiveness came as no surprise to observers but as a result the Euro once again weakened against a basket of currencies.
The Pound to Euro exchange rate is currently trading at 1.245
The Pound to US Dollar exchange rate is currently trading at 1.568
The Euro to Australian Dollar exchange rate is currently trading at 1.286
The Euro to US Dollar exchange rate is currently trading at 1.259
The Euro to Pound exchange rate is currently trading at 0.802