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U.K Economy Slips Into a Recession as GDP Contracts 0.5% in the Third Quarter

Friday, 24 October 2008 08:43:00 GMT  |  David Song, Currency Analyst

The advanced GDP reading for the U.K showed that the economy slipped into a recession for the first time since 1991 as the economy contracted 0.5% in the third quarter. The reading crossed the wires far worse than the expected 0.2% decline projected by economists.

The advanced GDP reading for the U.K showed that the economy slipped into a recession for the first time since 1991 as the economy contracted 0.5% in the third quarter. Indeed, the downturn in the housing and credit sector paired with the slowdown in the global economy has certainly taken a toll on Europe’s second largest economy, and has left the BoE in a complex situation as inflation remains well above the bank’s limit of 3%. The downturn in the economy has certainly fueled expectations for the MPC to ease policy further as fears of a global recession intensifies, which would only fuel bearish sentiment for the British pound. In fact, the pound-dollar (GBPUSD) dropped to its lowest level since 2003 following the release as the pair dipped below the 1.56 level, and may fall further in the near-term as Credit Suisse overnight index swaps are showing that investors expect the Bank of England to cut at least 175bp over the next 12 months.

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