Sterling down to five-year low as UK economy heads for slow down

11 Apr 2015


The UK currency tanked to a five-year low on Friday with the dismal industrial production data for February adding to concerns that the Q1 GDP data later this month would be even less encouraging.

The GDP data on 28 April would come just a week ahead of the general elections, and therefore there was higher political uncertainty about output data, as dismal growth numbers could have much bigger political impact.

GBP / USD fell more than 100 price interest points on the day to as low as 1.4601 as at 12.30 BST, its lowest since June 2010 and the pound was down more than 2 per cent with the decline since Wednesday's close alone coming to 1.7 per cent.

UK's manufacturing output growth fell to 1.1 per cent on a year-on-year basis in February from 1.7 per cent in January as against 1.1 per cent growth projected by analysts. The industrial output growth slowed to 0.1 per cent from 1.2 per cent against the consensus of 0.4 per cent growth.

The month-on-month industrial output rebounded to 0.1 per cent growth from 0.1 per cent decline at the start of the year but trailed analysts forecast of 0.3 per cent growth.

Industrial output barely grew in February, taking a hit from the big fall in oil and gas production, while construction output fell as per  official data that came in weaker than projected.

The numbers point to overall economic growth in the first three months of 2015 possibly slowing down when figures are published nine days before the 7 May election.

According to Chris Williamson, chief economist at financial data firm Markit, it now looked like the economy slowed and possibly quite markedly.

In 2014, the UK economy had registered a 2.8 per cent growth, faster than any of the world's other big advanced economies.

However, even before Friday's data, there were signs of the pace of growth slowing in early 2015 including a contraction of the UK's dominant services sector in January.

However, the figures could not be taken to mean that the economy would hit the skids this year - the Office for National Statistics figures had been weaker generally than private sector surveys on manufacturing - but the Bank of England might be prompted to keep interest rates at a record low, economists said.

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