The pound fell to its lowest level against the Euro since March 2010 and continued its general decline across the board as poor economic data, recent political instability within the coalition government and diminishing prospects that the Bank of England will increase UK interest rates anytime soon all took their toll.
This morning, the respected think tank the National Institute of Economic and Social Research (NIESR) reported that UK gross domestic product (GDP) will grow by just 1.4% this year. This is 0.3% below the Office for Budget Responsibility’s (OBR) forecast, which was already adjusted down in the March Budget. A toxic combination of public spending cuts, higher taxes and rising inflation would also result in “lacklustre” growth of 2% in 2012 according to NIESR.
Meanwhile, the British Chambers of Commerce (BCC) and the Institute of Directors (IoD) both urged policy-makers to keep interest rates at the historically low level of 0.5%, claiming any increase this month would damage economic recovery.
Figures published this week showed a slowdown in the construction sector, sluggish lending data to consumers and homebuyers and falling house prices.
Elsewhere, the Euro continues to strengthen on the expectation that EU policymakers may increase interest rates again in the next few months if inflation continues above target and on the agreed bail out of Portugal.
Both the Bank of England (BoE) and European Central Bank (ECB) both meet and make their interest rate decision today for this month but no change is expected for now from either side.
The US dollar continues to keep pace with the pound, again losing ground on poorer than expected data and the Federal Reserve’s ultra loose interest rate policy. Disappointing private US payrolls data sparked concern about the US economic recovery yesterday leading to big falls across equity and commodity markets.
Commentary by Tony Redondo
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