Pound falls further and GDP shows worst decline since 1980

01-23-2009 12:02

The British pound dropped under support at 1.3685 with a minimum level of 1.3526 while the gross domestic product (GDP) proved that the present recession exceeds expectations. The annualised rate showed a –1.8% rate due to the initial quarterly results of a 1.5% decline which surpassed the expected 1.2% and was the weakest since 1980. The statistics proved the UK recession while the fourth quarter resulted in a 0.6% decline; equal to the third quarter. Although the economy is weak, UK retail sales increased surprisingly in December by 1.6% due to the discounts during the holiday which gave apparel sales a 28.5% boost.

It is possible that consumer consumption rose as a diversion while the extending recession will damage the current debility of the job market and the present banking crisis should weigh on sentiment. The 0.4% decline in the service segment means the fifth consecutive drop which results in one of the most poor levels since the 1970’s. The service segment covers more than 75% of the economy and because of the problems in this segment the Bank of England may be forced to lower interest to zero percent trying to avoid depression.

The weak stock markets may go on increasing support for the dollar while safe flows continue to aim at American treasury’s. Yesterday’s US sell off has executed through to Europe and Asia during overnight trading. Prospects for a worldwide growth have been reduced as fundamental data in Asia and Europe weaker. Despite the lack of major US events, corporate earnings should state sentiment once more as GE (General Electric) reports today. The present period of bearish sentiment has been sparked by Microsoft’s thin earnings report and statement to cut 5.000 jobs. The value of US futures reached a level of more than 150 points most of the overnight which indicates another down day for US stocks and a increase of ‘bullish’ dollar sentiment.

The Euro suffered a sold off which resulted in a 1.2790 level while bearish sentiment has been stimulated by risk aversion and due to the fact that things get worse in the region. The PMI reading proved some progress as a result of the stimulus plans and interest rate cuts, while the previous month showed an all-time low of 38.2 with a reading of 38.5. Still the manufacturing and service sector continue their decline for the eight consecutive month.