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Pound Drops as UK Economy Contracts

January 25, 2013 at 9:46 by Vladimir Vyun

20-pound banknotesThe Great Britain pound fell today, retreating against the US dollar, reaching the lowest level since December 2011 against the euro and trimming its gains versus the Japanese yen after the report showed that the decline of the UK economy last quarter was even bigger than was anticipated by analysts.

Britain’s gross domestic product contracted 0.3 percent in the fourth quarter of 2012, while forecasts promised a 0.1 percent decline. The recession followed the 0.9 percent growth in the third quarter. The report explained the sharp drop by “the special events in the second and third quarters”:

This contraction can partly be attributed to the special events in the second and third quarters. Output in the second quarter was subdued by a reduction in working days due to the additional bank holiday for the Queen’s Diamond Jubilee, and provided a lower base for growth in the third quarter. In addition, hosting the London 2012 Olympic and Paralympics games may have had a positive impact on growth in the third quarter.

Previous fundamental reports this week were not bad at all, but the decline of the economy made traders view the sterling in a negative light.

GBP/USD fell from 1.5783 to 1.5761 as of 9:46 GMT today, retreating from the daily high of 1.5819. EUR/GBP jumped from 0.8467 to 0.8519. GBP/JPY traded at 143.18, above the opening level of 142.56, but far below the daily maximum of 143.71.

If you have any questions, comments or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.

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