UK in recession…..a reaction?

After the initial shock following yesterday’s announcement from the Office of National Statistics that the UK is officially back in recession, where we saw the Pound quickly lose around 0.5% against most major currencies, Sterling seems to have recovered quite pretty well starting the day only half a cent away from the recent 20 month high against the Euro and just touching 1.62 ( a 6 month high) against the US Dollar.

In my mind the reason for the Pounds continued strength could be one of two things. Firstly, the recession may not be all that it seems, the GDP announcement made yesterday is only based on 40% of the data required to get an accurate figure and as a result may be wildly inaccurate, we will know much more when we see the revised figure on 24th May which takes into account over 80% of all appropriate data – I’m fairly confident that we may see a positive GDP figure within a month’s time.

Secondly, the move into recession is only a small one, the expectation was only for 0.1% growth so in reality the difference was only 0.3%, not exactly a crippling shift! When compared to the extensive and continued problems in Europe (read: Spain recently moving into recession and most likely needing a multi-million Dollar bailout) and the US not forecasting any increase in interest rates for another 2 ½ years then the picture for Sterling looks a lot more rosy. Don’t get me wrong I’m not saying for 1 minute that the UK economy is thriving and will continue to grow in the months to come – I just think we need to sit back, take a bit more perspective in and look at  what the numbers really mean!!

The Pound may well stumble along between 1.20 and 1.25 for the next few weeks, but is that a bad thing? If you ask anyone who had to buy Euros in the last 2 years I think you would have a unanimous vote of no, in recent times buying above 1.20 is certainly a luxury and not the norm and shouldn’t be taken for granted.

If you would like to talk to me about the markets or your specific currency requirements feel free to call me on 01494 787478 (don’t forget to ask for Steve) or email me at [email protected]. I look forward to hearing from you.