Forex News – Sterling falls after weaker U.K. GDP

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Sterling dropped to a two-week low versus the euro and fell to a session low against the U.S. dollar following disappointing GDP data that showed the U.K. economy contracted more than previously estimated in the final quarter of last year.

The U.K. Office of National Statistics (ONS) released the final GDP figures for the fourth quarter which showed quarterly GDP dropped by 0.3 percent between October and December, taking the annual rate of growth to 0.5 percent, against expectations for unrevised readings of -0.2 percent quarter-on-quarter and 0.7 percent year-on-year.

This was the biggest fall in quarterly GDP since Q4 2010

The ONS said the downward revision in quarterly GDP was driven by the transport and communications and business services and finances sectors .  Real household disposable income fell by 1.2 percent in 2011 as a whole, the biggest decline since 1977.

GDPUSD dropped to 1.5903 from 1.5939 where it was before the news at 09:30 am London time.

EURGBP hit a two-week high of 0.8394 after surging from pre-news level of 0.8380.

Commerzbank Analyst, Peter Dixon comments:

“Looking at the numbers there does appear to be slight marginal downward revisions to private consumption and government consumption, but the fixed investment figures weren’t as bad as we thought they were.

“What does it mean? Probably not a lot. But it kind of makes the starting point for 2012 that little bit more difficult. To some extent where you start determines your average outcome for the year, it just makes the hill a little bit steeper in order to reach the OBR’s 0.8 percent growth target.

“I don’t think it materially changes the picture (on more QE). It’s going to be a close call as to whether the Bank of England does something. I think to some extent they’ll wait and see what the Fed does. If the Fed does way in with QE3 in the course of April the Bank of England might decide they can afford to pause for a while.”