The British Monetary Policy Committee expanded the Asset Purchase Facility by an additional 50 billion pounds to £325, as was expected. The pound rose on news of the QE release, breaking through the 1.59 level, before retracting at the end of the trading week.

The Purchasing Managers’ indices in the UK were generally better than expected in January, and an official recession now seems less likely. However, another round of QE by the contral bank seems inevitable. Despite stronger US growth, the pound has had a spectacular run, rising over 500 pips against the dollar since mid-January.

The dollar weakened against most major currencies following Bernanke’s announcement that  interest rates will likely remain near zero until late 2014. This was despite solid economic data coming out of the US.

Unemployment in the UK remains high at 8.4%, making an economic recovery difficult. With a drop in inflation reported last week, the likelihood of the Bank of England expanding its QE program in the upcoming meeting in February are on the rise.

British QE expansion is likely in February, and more and more QE means more money printing, and this eventually takes its toll in devaluing the currency.

The pound continues to show weakness against the greenback, due in large part to the sluggish UK economy and continuing debt crisis affecting the eurozone.

The UK economy grew by 0.6% in Q3, which was surprisingly good news. Other indicators point to a more troubling picture for 2012, such as the current deficit, which has ballooned to 15.2 billion pounds.   Recently, the British pound managed to distance itself from the debt crisis affecting Europe. The movements in GBP/USD were still correlated with those made by EUR/USD, but the euro lost much more ground against the dollar. This has resulted in a big drop in EUR/GBP that reached levels seen only at the beginning of the year.

The British government deficit hit 15.2 billion in November, which although sharply higher than the October reading, was a bit better than the market forecast, and postive news for the pound.At the same time, property prices are down significantly, and most economic indicators are pointing to a recession in 2012.

The eurozone crisis and the global slowdown continue to batter Britain’s weak economy. The Treasury is forecasting that growth in 2011 will be a weak 1.1%, well down from the 2% projection at the beginning of the year. There is a strong chance that the economy will dip into a recession in early 2012. The economic indicators do not paint a pretty picture. Consumer confidence is very low, unemployment is high, at 8.3%, and keys sectors such as retail and manufacturing continue to struggle.

Britain’s trade balance deficit fell to 7.6 billion pounds in October, which was significantly better than the  9.5 billion deficit  that was expected. This figure is bullish for the pound, which has been inching up against the dollar.