GBP falls

GBP falls

The UK economy shrank much more than expected in the second quarter as unusually wet weather and an extra public holiday weighed heavily on output. UK GDP declined by 0.7% (consensus -0.2%) after contracting 0.3% in the first three months of the year. Although this release may understate ‘underlying growth’ in the economy it will add pressure on the government to provide more economic stimulus.

The euro staged a recovery yesterday after comments from an ECB council member. Ewald Nowotny, president of the National Bank of Austria, said that there is a “pro argument” for giving the European Stability Mechanism (ESM) a banking licence. If this was granted, the ESM would gain greater access to ECB funding and have more firepower to tackle the eurozone crisis.

Sterling came under pressure immediately after the release of the dire GDP figures. GBP/USD slipped to $1.5456, its lowest in nearly two weeks, while GBP/EUR weakened by over a cent to €1.2727.

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