Pound Suffers As UK Economy Contracts

The British pound suffered its worst performance in over a month on Tuesday as data revealed a shocking 0.5 percent contraction in the UK economy for the December quarter.

Sterling dropped over two cents to $1.5821against the US dollar and reached a ten week low against the euro at £0.8648.

After four quarters of growth, economists had forecast a rise in the UK’s gross domestic product of 0.6 percent and expected an immediate rate hike by the Bank of England in order to quash growing price pressures.

However, the loss in GDP of 0.5 percent has put any hopes of a rate rise on hold and fuelled fears of a double-dip recession.

Whilst the government has blamed the financial impact of the winter weather, many analysts fear that the fragile UK economy is unable cope with government spending cuts and austerity measures.

Maurice Pomery at Strategic Alpha told The Financial Times that the central bank now faces the complex issue of rising inflation and a shrinking economy.

“This is really bad news for both the government and the Bank of England as it continues to wrestle with stubbornly high inflation,” Mr Pomery said. “Sterling is set to fall further.”

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