Sterling came under pressure on Monday after revisions to the UK’s first-quarter economic data failed to show any improvement in growth and indicated that the recession had been worse than thought.
Gross domestic product was shown to have risen by 0.3 per cent on the quarter, giving an annualised rate of -0.2 per cent, both unchanged from the previous estimate.
The peak-to-trough fall in output during the recession, however, was revised up to 6.4 per cent from 6.2 per cent.
“The fact that the recession was deeper than previously thought supports the view that there is still substantial spare capacity in the economy and this will play a significant role in bringing down inflation over the coming months,” said Howard Archer at IHS Global Insight.
Inflation has remained stubbornly high in recent months and currently stands at 3.7 per cent, well above the 2 per cent targeted by the Bank of England. The Bank’s monetary policy committee continued to vote in favour of holding rates last week, but MPC member Andrew Sentance voted for a rate increase at last month’s meeting.
Mr Archer added: “With growth muted and inflation likely heading down significantly over the second half of 2010, we expect the Bank of England to keep interest rates down at 0.5 per cent through 2010 and well into 2011.”
Sterling fell 0.4 per cent to $1.4997 versus the dollar, and lost 0.5 per cent to Y132.83 against Japan’s yen. The pound, however, rose 0.1 per cent against a generally weaker euro to $0.8370.
Nerves ahead of the publication of banking industry stress tests and the start of financial reporting season left the euro struggling to maintain the two-month high it hit against the dollar last week.
It fell 0.6 per cent to $1.2567 and was down 0.6 per cent against the yen to Y111.33. The dollar was flat against the yen at Y88.60.
