UK GDP contraction sparks fear of a technical recession

United Kingdom’s GDP shrank by 0.2 percent in the fourth quarter which prompted the Bank of England Governor Mervyn King to qualify the recovery of the U.K. economy as “slow and uncertain.” King is trying to calm more optimistic views that see England avoiding two consecutive losing quarters as the outlook for the first quarter of 2012 is positive.

The GBP has been boosted by the fallout of the European outlook after the Greek bailout deal was finalized this week. A point of concern is the dramatic drop in business investment as companies are scaling back their spending.

Oil prices have reached an all time high in Europe and the U.K. (EUR 92.75 and GBP 78.53) due to supply concerns and a steady demand. US Dollar weakness has further propped up the price of oil as its the currency of denomination and countries where their local currencies have appreciated will feel a double pain as exports and energy costs both rise.

The G20 meeting that starts tomorrow will focus on the Eurozone crisis and what the role of the group will be going forward. U.S., Chinese and Japanese official have questioned the role of the IMF and want  more assurances that European individual governments and the economic zone as a whole are doing their part to prevent sovereign debt from reaching default status.

The IMF is looking for a 500 billion dollar commitment from the group in order to face the current European crisis. China, Japan and Mexico are willing to help if Europe leadership acts in line with their rhetoric. The U.S. is not seeking to add additional funds until they see “additional steps” are taken to prevent contagion.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza