The British pound got off to a rocky start today after the Office for National Statistics (ONS) announced that the economy contracted another 0.4 percent between July and September. This marks the sixth straight quarter that the economy has failed to record positive growth, and confirms that England remains mired in recession a full six months after France and Germany both returned to positive growth.
Since the beginning of the recession, the UK’s Gross Domestic Product has declined 6 percent and there is little on the horizon to suggest that the nation’s economic troubles will soon improve. For the quarter ending in August, unemployment rose another 0.7 percent to 7.9 percent – an increase of 2.3 percent over the same time last year, boosting the number of unemployed people to 28.8 million.
The question now is, how will the Bank of England respond?
Like most other central banks, the Bank of England slashed lending rates to record lows early into the recession, so there is little more than can be done in this area. The Bank also entered into a program of quantitative easing to inject cash directly into the financial system, committing £175 billion (USD$290.3 billion) to the spending plan.
Unfortunately, most of the funds have already been allocated, yet the economy continues to shrink. For this reason, many observers feel that the government will be forced to borrow more money to continue the spending program, and while this may help slow sterling’s descent in the short term, it seems that the pound will continue to under-perform most of the major currencies until the economy finally breaks out of its prolonged recession.
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