Forex News – Sterling drops on weak GDP

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The United Kingdom’s output contracted for the first time in a year. Gross Domestic Data for the fourth-quarter fell 0.2 percent from a year ago, according to the Office for National Statistics on Wednesday. The decline was larger than the expected drop of 0.1 percent.

The disappointing data are likely to reinforce expectations the Bank of England will inject more stimulus into the economy next month after BoE Governor Mervyn King warned of an arduous recovery ahead.

Much of the cause was attributed to weakness in the production and construction sectors. Construction output fell 0.5 percent, compared with an increase of 0.3 percent in the prior quarter. Distribution, hotels and restaurants increased by 0.7 percent from a year earlier. Business services and finances rose 2.1 percent, outpaced by a 2.5 percent increase in the government and other services sector.

The British pound dropped against the dollar after the report, to a session low of  1.5534 from 1.5581 before the news.

Meanwhile, the Bank of England policy meeting minutes were released, showing that all nine MPC members voted  in the  January 12 decision to leave the central bank’s key lending rate unchanged at 0.5 percent and to maintain its program of asset purchases at 275 billion pounds.

The minutes noted that for some MPC members the risks of undershooting the bank’s 2 percent inflation target meant that a further expansion of asset purchases “was likely to be required.” This would result in a further weakening of the pound.