Market Analytics

Data released today shows that British economy shrank in the fourth quarter by 0.2%, while the market was expecting only 0.1% contraction. The UK is now dangerously close to recession. The IMF reduced 2012 forecast for UK GDP growth from 1.6% to 0.6%. Britain’s economy is hit by the European debt crisis and austerity measures.

Bank of England’s Governor Mervyn King claimed that the economy faced an “arduous, long and uneven” path to recovery but that once it does it will be on a “more sustainable footing than at any point in the past 15 years”.
UK Prime Minister David Cameron claimed that “economy grew last year”. “More people in work today than at time of last election... Fall in GDP reflects higher food and fuel prices, euro zone crisis and debt overhang”.

Billionaire investor George Soros said at the World Economic Forum which began today in Davos, Switzerland, that “to expect a rebound is unrealistic”. The specialist notes, however, that “Britain is benefitting from not being part of the euro. The outlook for the euro is truly dismal. The EU is undemocratic to the point where the electorate is disaffected and ungovernable”.

Analysts at ING think that “UK economic activity is likely to get worse before it gets better, with a technical recession likely to be confirmed by first-quarter 2012 GDP numbers”. “Household spending is constrained by the fact that wages have failed to keep pace with the cost of living for four consecutive years while job insecurity is rising once again”.

Economists at RBS note that “the primary source of negative news in Q4 was from the industrial sector where weakness in the UK’s key export markets is certain to have been a key factor, along with the unseasonably mild weather which depressed energy output.”

Chart. Daily GBP/USD