About British pound

By Friday’s close, the British pound fell more than 1 percent against the Japanese yen and nearly 2 percent versus the US dollar and euro after the release of a deeply disappointing Q3 report. Contrary to expectations, the UK did not emerge from recession, and instead, the economy contracted for the sixth straight quarter, this time by -0.4 percent. Though this is marginally better than the reading of -0.6 percent we saw in Q2, the index missed forecasts for a 0.2 percent increase. Likewise, the annual rate of growth edged up to -5.2 percent from -5.5 percent, but fell short of expectations for a move to -4.6 percent. A breakdown of the report shows that nearly every UK business sector remained in recession, as the services industry component fell by 0.2 percent while the production industry component tumbled 0.7 percent. The release of GDP led to a sharp reaction from the British pound as Credit Suisse overnight index swaps shifted to price in a 10 percent chance of a 25 basis point cut by the BOE during their next meeting, while expectations for rate increases over the next 12 months have fallen to 88.1 basis points from 93.4 basis points.

All told, the news will put much more pressure on the BOE when they meet again in November. In the minutes from the central bank’s last policy meeting, we learned that their quantitative easing (QE) program would take another month to complete. We also learned that the "forecast round ahead of the November Inflation Report would provide an opportunity to assess more fully how the medium-term outlook for activity and inflation had evolved since August," and if the latest economic data has any bearing on the MPC’s bias, they may have the justification to expand their target level of asset purchases