Sterling dipped only briefly against the dollar after data showed that the economy in the United Kingdom contracted in the fourth quarter of 2011. Gross domestic product shrank by 0.2 percent but this was in line with expectations and unchanged from the previous quarter.
GBPUSD dipped to 1.5778 from 1.5797 before the news, but then bounced back to climb higher to a session high of 1.5818. Sterling also rose against the euro pushing the single currency off a two-month high 0.8505. EURGBP slid to a session low of 0.8468 by 10:22 GMT.
The breakdown of the fourth-quarter GDP data contains a mixture of both worrying and encouraging news. Data show that consumer spending was higher and export growth was strong but businesses slashed investment.
Consumer spending rose by 0.5 percent on the quarter – the first quarterly increase in 1-1/2 years – while exports jumped 2.3 percent. But gross fixed capital formation dropped by 2.8 percent, with business investment falling 5.6 percent on the quarter.
However, recent data and surveys indicated some improvement in services activity, manufacturing and retail sales, which gives some expectations for the UK economy to grow slightly in the first quarter of 2012. It is expected that the UK will just about avoid another recession. Recently, the Bank of England’s expansion in its asset purchase program by GBP50 billion is expected to stimulate growth further.