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U.K. Economy Barely Grows in First Quarter and Narrowly Avoids Recession

U.K. Economy Barely Grows in First Quarter and Narrowly Avoids Recession

Tzu-Wen Chen, Technical Strategist

THE TAKEAWAY: [U.K. economy grows 0.1% in Q1 2012] > [Narrowly avoids recession] > [GBPUSD weakens]

The U.K. economy barely grew in the first quarter of 2012, with the National Institute of Economic and Social Research (NIESR) reporting today that the U.K.’s Gross Domestic Product (GDP) probably grew by only 0.1 percent. Meanwhile, the GDP estimate for the three months to February was revised downwards to stagnation from the 0.1 percent growth previously reported. The NIESR said that the U.K. economy narrowly avoided a technical recession as this follows two consecutive quarters of contraction, with shrinkages of 0.2 percent reported in both December and January.

The latest GDP estimates indicate a slow recovery of the U.K. economy. The NIESR said that although the economy will avoid recession, U.K. recovery would not fully take hold until 2013. Furthermore, the weak rates of growth would result in the U.K.’s output gap widening, which signals 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 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: April 05, 2012

U.K._Economy_Barely_Grows_in_First_Quarter_and_Narrowly_Avoids_Recession_body_Picture_1.png, U.K. Economy Barely Grows in First Quarter and Narrowly Avoids Recession

Chart created using Strategy Trader – Prepared by Tzu-Wen Chen

The British pound tumbled against the U.S. dollar following release of the NIESR’s estimates, which indicated a slow recovery of the U.K. economy. The pound fell 20 pips against the greenback in the minutes following the data release, and was trading at around $1.5820 to the pound at the time of this report.

--- Written by Tzu-Wen Chen DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.