U.K. Q1 GDP was confirmed at -1.9% q/q and -4.1% y/y as expected. The breakdown of the demand side showed consumer spending contracting by 1.2% q/q, this is the largest q/q fall since Q4 1980 and compares to a 1.0% q/q decline in Q4 of 2008. Public spending growth was the only positive contributor to Q1 growth, but rose by a mere 0.3% q/q after a 1.3% increase in the previous quarter. Investment fell by 3.8% q/q and exports dropped by a very sharp 6.1% q/q, compared to -3.9% in Q4. Imports declined 5.0% q/q. From the output side, service output was unrevised at -1.2% q/q, while production fell 5.3% q/q, an upward revision from -5.5% previously. Q1 is expected to have been the worst quarter for the U.K. economy and the economy should have contracted by a far slower pace in Q2. Nevertheless, the breakdown of today’s data highlight the dire state of the U.K. economy, with a weak Sterling unable to provide much of a boost for exporters and consumer spending, historically the main driver of U.K. growth, falling the most sharply in almost 30 years.
Meanwhile, GBP came under pressure earlier in London trade with the market wary about the currency’s recovery gains yesterday following the sharp losses in the immediate wake of the S&P announcement (downgrading its U.K. outlook). Both British and continental European fund names have reportedly been among sterling sellers. A fairly sharp drop in GBP/JPY was seen while EUR/GBP climbed back above 0.8800 in recouping about three quarters of Thursday’s losses. The pound seems to be in the same boat as the dollar currently, though it could be argued that the U.S. currency might have more to lose in a sovereign ratings downgrade as such an eventuality may strengthen impetus behind forces that may undermine the dollar’s reserve currency hegemony. GBP has managed to find a footing after the earlier drop. Trading impetus seems curtailed ahead of the long weekend in the U.K. and U.S.
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