Sterling has started to weaken this morning and exchange rates have fallen, following the news that the UK Economy is the worst since 1980, the IMF predict the UK will be the worst performing economy this year, and also news that RBS has posted the the largest annual loss in UK corporate history - a staggering £24.1 billion pounds.
Lets look at each story in turn and what this means for the future value of Sterling, and therefore exchange rates:
UK economy worst since 1980
Britain's economy contracted at its fastest pace since in nearly 30 years in the last three months of 2008, official figures confirmed yesterday. Households also cut spending at the sharpest rate since 1991.
The Office for National Statistics (ONS) said its second estimate of GDP showed a shrinking of 1.5% in the last three months of 2008. The annual rate was revised down by 0.1 percentage points to a fall of 1.9%.
Analysts had expected a slight downward revision of the quarterly rate, however the ONS left this unchanged, but it did cut its prediction for third-quarter activity to a drop by 0.7% from a previously reported 0.6% fall.
The figures confirm that Britain entered a very steep recession at the end of last year and increase expectations that the Bank of England will take further steps to ease monetary conditions.
With interest rates nearing zero, and little more room to stimulate the economy in this way, the BoE is moving towards buying assets with newly-created money to try and boost demand, otherwise known as quantitive easing, as outlined previously on this blog.
"The economy remains in deep recession. In Q1 we expect a contraction of similar magnitude to that seen in Q4," commented Adam Chester, an economist at HBOS. "Consumer and business surveys point to ongoing weakness to the end of 2009."
These poor figures mean that we may see a severe drop in exchange rates, with every chance that GBPEUR could head towards and below parity.
IMF Predicts poor performance from the UK
The International Monetary Fund also said yesterday, that it expects Britain to be the worst-performing big economy this year, as its economic decline gathers pace. The United States, Japan and Germany all suffered bigger falls in GDP at the end of last year.
This prediction means there is a very good chance that Sterling will weaken as the year goes on. If the UK is indeed going to be the worst performing economy this year, then it follows that Sterling may well be the worst performing currency. There is every reason therefore to expect a decline in Sterling Exchange Rates.
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RBS lose more than £24 billion pounds
Royal Bank of Scotland has announced the largest annual loss in UK corporate history ever.
RBS, which has been bailed out by the government recently, said that its 2008 loss totalled £24.1 billion. Chairman Philip Hampton blamed the massive loss on the "unprecedented turbulence" in financial markets and deteriorating economic conditions around the world.
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We owe our continued independence to the UK government and taxpayers and are very thankful for their support," he said. He warned that 2009 would be another tough year. This is not good for the pound, and coupled with the other news of the coming economic woes facing the economy this year, and the outlook for Sterling exchange rates is now very poor.
Todays Data
We have already had the UK Nationwide Housing data, coming in as expected. Later today we have EU Consumer and Economic data. Also German unemplyment data is released today. Later this afternoon we have US Home Sales and US Jobless Claims.
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Labels: EUR, Exchange Rate Forecast, GBP, Sterling Outlook, USD