(menafn – ecpulse)
The United Kingdom contracted more than projected in the fourth quarter of 2011, the thing that weighed significantly on the sterling pound which reversed sharply to the downside against the U.S. dollar. In addition, the British main equity, FTSE 100, surrendered almost all the gains as the sentiment deteriorated and concerns spread that the United Kingdom may slip into a deep phase of recession, following its European peers.
The United Kingdom contracted 0.3% in the fourth quarter of last year, revised higher from the advanced reading of 0.2% contraction, compared with the previous expansion of 0.5% recorded in the third quarter of 2011. Over annual basis, the royal economy expanded by 0.5% from the previous of 1.3%, revised lower from the advanced reading of 0.7%.
The unexpected contraction was led by the significant drop in gross fixed capital formation, which shed 2.8% from the previous drop of 1.0%, noting that exports expanded in the quarter by 2.3%, imports by 0.4%, households spending by 0.5% and finally government spending by 1.0%.
Government spending expanded slightly by 1.0%; however, the pace remains weak and therefore we conclude that the spending-cut measures adopted by the British government has weighed sharply on growth and the pace of recovery.
Policy makers are still split over the measures needed to solve the current economic difficulties in the Kingdom, where the Bank of England's Monetary Policy Committee didn’t vote unanimously on leaving the current stimulus unchanged at 325 billion pound, noting that David Miles and Adam Posen continue to call for more expansion in the capacity of the easing in order to boost growth and recovery in the Kingdom.
We can notice that policy makers in the United Kingdom are facing two different major types of difficulties, where the Bank of England is facing difficult choice limited between boosting growth and controlling inflation, which has stood at 3.4% in March.
Inflation in the United Kingdom keeps on pressuring households' income, leading spending levels to remain low and therefore growth fragile and weak. In addition, unemployment remained at the highest level of 8.4% in March, while the claimant count rate was 5.0% the thing that reflects bad economic situation in the royal economy.
The sterling pound is currently trading at 1.5919 versus the low yielding U.S. dollar, after reaching a low of 1.5903. The pair also opened the session at 1.5947 and reached a high of 1.5963 before the news.
FTSE 100 index reversed to the downside after the news, followed by other European Equities, posting now 0.21% or 12.29 points of losses, to currently trade around 5857.04 points.