The UK economy is worsening which is having a big impact on the British pound.
Last week economic data indicated that the service, manufacturing and construction sector all contracted in the same month. The last time this happened was 7 years ago and at that time, GDP growth slowed to 0.1 percent, the weakest level since the second quarter of 1992. This morning, UK industrial production fell 0.8 percent, 8 times more than the market’s forecast. The entire UK economy is slowing and the country is now at risk of falling into a recession. This has become such a serious problem that there is even speculation the Bank of England could cut interest rates on Thursday. Given current inflationary conditions, we do not think that this is possible, but we do believe that the British pound will continue to trend lower ahead of the meeting. GDP growth should continue to deteriorate in the coming quarters, making the Bank of England’s job even more difficult. The report on house prices that is due for release tomorrow and that should also be pound bearish.