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Pound slips on surprise UK GDP downturn

The UK pound lost a cent against the euro this week, as data reveals last quarter’s contraction in the UK was a bit deeper than previously thought.


UK sterling has given up almost a cent against the euro this week, as the ONS (Office for National Statistics) tells us Britain contracted -0.1% more than previously thought in Q4, to a total –0.3%. Obviously enough, this has stoked concerns the UK might re-enter recession in 2012, and in fact the OECD (those cheery fellows!) have already made this prediction.

Bright side for Britain

Fortunately, on the flip-side there are plenty of economists who accuse the OECD of doom-mongering here, and indeed UK performance in 2012 has been pretty solid so far. Both the manufacturing and services sectors expanded these past 3 months, while exports also enjoyed a solid increase. This suggests the UK might dodge the bullet where a double dip recession is concerned, and the pound might yet make a comeback. That of course would be great news if you’re emigrating to Iberia.

Huelga general sabotages the euro

One big reason the euro didn’t gain more ground against the pound this week is the general strike held in Spain. Though Spain’s ministers dismissed the strike (more or less saying, “Hahahah! This disruption of public services cannot stop us making spending cuts!”) the strike nonetheless sent a strong signal that Spain’s population will not tolerate too much austerity. This is especially so unless ministers make it clear where Spain is headed as a nation, besides the cuts.

EU competitiveness gap grows

In addition, data telling us the competitiveness gap between northern and southern Europe is increasing also limited euro strength this week. In Germany, unemployment dropped –0.1% to just 6.7% this month, giving it among the lowest unemployment rates in the developed world (I think just Australia beats it, with 5.3%.) Given that unemployment in Spain for instance is tipped to break 25.0% this year (that’s one in four people without a job) the difference in outlook between the euro core and its periphery could not be clearer.

Coming up

Looking ahead, I think it’s quite possible the pound could recover its losses in the short term, especially as the crisis in the eurozone once again heats up. Spain has become a focus point of late as I mention, but in addition there are rumours Portugal might need a second bailout, while presidential elections in France could also cause unease.

Of course, I return with my next market update next week. If you have any questions in the meantime about changing currencies or transferring money abroad in general, please don’t hesitate to contact me. I’ll do my utmost to provide a satisfactory answer to your enquiry.

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Peter Lavelle is an economist at foreign exchange broker Pure FX. For a free no-obligation quote regarding changing currencies, get in touch at foreign exchange specialist Pure FX.

Copyright: Peter Lavelle, Pure FX
Category: Expats
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