(menafn – ecpulse)
The British economy fell back into recession after recording another contraction in the first quarter, raising concerns regarding the outlook of the economy amid worries from the euro area and ease in U.S. data.
Today's report showed that the advanced reading came in at -0.2% following the 0.3% contraction recorded in the last quarter of 2011, compared with expectations of 0.1% growth.
Yesterday, policy maker David Miles warned of relapsing into a double dip recession commenting that "it seems pretty likely that right now, growth in the economy is pretty weak, probably marginally positive, but pretty weak."
Details with the release showed that the reading was driven down by the 3% plunge in construction and a 0.4% fall in industrial production.As for manufacturing it witnessed 0.1% contraction while services expanded 0.1%.
In fact, the data put pressure on policy makers and raise questions regarding their ability to shore up the economy amid the high joblessness and rebound in inflation amid the government's pledge to continue with austerity measures.
Although ILO unemployment for the three months ended in February retreated to 8.3% compared with a prior of 8.4%, yet the rate remains high.
The deficit-cutting program may shave 700,000 government jobs by 2017.
On the other hand, CPI for the year ended March unexpectedly soared for the first time in six months to 3.5% from the lowest in 15 months of 3.4% in February, where prices halted its downside fall after retreating from a high of 5.2% in September last year.
A further rise in unemployment would put policy makers in a bad situation as they have to fight both high inflation and unemployment, knowing that there is a trade off between them.
This month, BoE opted to leave both borrowing cost and APF steady at 0.50% and 325 billion pounds.
David Miles said the exit point of stimulus will depend on inflation prospects while the first step in tightening is more likely to be raising interest rate, yet he probably sees threats on recovery from the euro area and thereby wants stronger stimulus for the economy.
It seems that the expansion of stimulus in February was not enough to bolster growth amid worries stemming from the euro area, U.K.'s largest export market, after the rise in yields and slowdown in economic activities.
In the same vein, the most recent data from the U.S. is referring to a slowdown and thus the Fed may announce further stimulus to bolster the economy.
Meanwhile, the GBP/USD is trading lower, curbing the rally seen after advancing for seven consecutive sessions. The pair is trading around 1.6085 compared with the day's opening level of 1.6141.