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U.K. Economy Barely Grows in April After Double-Dip Recession

By Tzu-Wen Chen
10 May 2012 14:31 GMT

THE TAKEAWAY: [U.K. economy grows 0.1% in three months to April] > [March GDP revision puts U.K. economy into first double-dip recession since 1975] > [GBPUSD weakens]

The British economy barely grew in the three months through April, after contracting in the first quarter. The National Institute of Economic and Social Research (NIESR) reported today that the U.K.’s Gross Domestic Product (GDP) probably grew by only 0.1 percent. Meanwhile, the Institute revised its first quarter GDP estimate downwards to a contraction of 0.2 percent from 0.1 percent growth initially reported. This marks three consecutive quarters of contraction, which puts the U.K. economy into its first double-dip recession since 1975.

The NIESR said that growth will remain ‘flat’ over the next six months and projected that recovery of the U.K. economy would not fully take hold until 2013. With a stagnant economy, the negative output gap is likely to widen further, which would signal additional slack in the economy such as ongoing high unemployment and idling production lines.

Earlier today, the Bank of England’s announced its decision to hold the benchmark interest rate unchanged at 0.50 percent and the Bank’s Asset Purchase Target unchanged at 325 billion pounds. The Bank resisted expanding its stimulus package as inflation risks mount.The latest GDP estimates further support the BOE's monetary policy decision to maintain low rates in a bid to encourage economic growth.

GBPUSD 1-minute Chart: May 10, 2012

U.K._Economy_Barely_Grows_in_April_After_Double-Dip_Recession_body_Picture_1.png, U.K. Economy Barely Grows in April After Double-Dip Recession

Chart created using Market Scope – Prepared by Tzu-Wen Chen

The market reaction to the data release was mixed, with the British pound initially gaining as much as 10 pips against the U.S. dollar before reversing its direction. At the time of this report, the GBPUSD pair had taken a nosedive and was trading lower at $1.6166 to the pound.

--- Written by Tzu-Wen Chen, DailyFX Research

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10 May 2012 14:31 GMT