British Pound Under Pressure as UK Business Investment Plunges 10.4%, Bodes Ill for F

The British pound was close to being the weakest of the majors on Thursday, second only to the US dollar, but this was only because of sudden spike lower in the greenback across the majors between 14:00 ET and 14:30 ET. Looking to the UK data on hand, total business investment fell much more than anticipated during Q2 at a rate of -10.4 percent, dragging the annual rate of growth down to -18.4 percent from -9.7 percent. The disappointing news highlights the impact of the recession and tight credit conditions on businesses in the nation, and bodes very ill for tomorrow’s preliminary release of Q2 GDP. This index is not anticipated to be revised from previous estimates of a 0.8 percent quarterly contraction and a 5.6 percent annual contraction, the worst since recordkeeping began in 1955. The economic decline was led by a 2.2 percent drop in construction and a 0.7 percent slump in business services and finance, but the updated figures may reflect a greater deterioration in growth given the steep drop in investment. That said, with the Bank of England’s latest meeting minutes showing that three Monetary Policy Committee members, including BOE Governor Mervyn King, voted in favor of a larger increase to their quantitative easing program than was actually implemented, a steeper than expected decline could lead the markets to price in another QE expansion at the end of the year and push the British pound lower. Additionally, worsened growth figures will only add to fears that the government’s fiscal deficits will widen further, spurring speculation that the UK’s AAA credit rating could be in danger, as Standard & Poor’s already downgraded the credit outlook to “negative” from “stable” in May.

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