10.06.11

GBP under Pressure due to Lack of Economic Growth

The Great Britain Pound has been faced with a difficult time today as a result of the fact that the economic growth has downgraded intensely. The situation in the entire world is rather difficult at the moment, with most of the countries being faced with a slow rhythm of growth and with sovereign debt problems which increases the concerns of the traders.

The fall of the Great Britain Pound comes as a result to the report of the UK Government today which indicates the fact that Britain’s economy has had a slower pace of growth lately, smaller than the one which has previously been estimated. This has increased the concerns related to which the Great Britain’s economy is very likely not to be able to survive without additional stimulus.

The report indicated the fact that the UK’s gross domestic product in the first quarter was changed from 0.2 percent to 0.1 percent. This has also occurred when it comes to the growth registered in the second quarter, which has been revised from the estimated figure of 0.5 percent to the real one of 0.4 percent. The Markit/CIPS UK Services PMI increased up to 52.9 in the month of September from the 51.1 registered in the previous month, instead of registering a decline, as it was estimated. Regardless of this thing, the growth rates continued to stay below trends and the business confidence kept on becoming worse. This overall decline of the UK’s economy condition has caused the market analysts to believe that the Bank of England is going to take the decision of having another round of quantitative easing.

The fact is that, at this moment, the US is considering the likelihood of QE3, while the Bank of England may be faced with the necessity of applying QE2. This means that today, when the decision concerning the evolution of the interest rates is going to be taken, there are lots of persons who believe that the Bank of England is going to announce the increase of asset purchases along with the announcement concerning the interest rates.

The problem is that the Bank of England does not actually have so many solutions when it comes to the interest rates, as the value of these is already very low, meaning that of 0.50 percent. This means that, in order to stimulate the economic growth, the Monetary Policy Committee at the Bank of England may be forced to apply a new round of quantitative easing through asset purchases. Although there continue to be concerns about the growth of the inflation rate in Britain, the QE2 would come as a measure in order to stimulate the economic growth. And, by taking into consideration all the recent economic stagnation, the BoE will most probably be forced to take this decision.

Based on these facts, the GBP lost ground against its major counterparts today. The GBP/USD pair decreased from 1.5486 to 1.5452, after previously reaching the intraday low of 1.5410. The GBP/JPY decreased from 118.90 to 118.40, after previously reaching the low of 118.05. The EUR/GBP pair increased from 0.8622 to 0.8619, while the GBP/CAD pair decreased from 1.683 to 1.6255.

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