UK in Recession – GBP/USD Crashes

The British economy squeezed by 0.2% in Q1 2012.Early expectations stood on a very modest growth rate of 0.1%. This is certainly a bad surprise.

This is the second quarter of contraction, making it an official recession. GBP/USD is now plunging on the bad news.

Cable fell from around 1.6140 to 1.6090, and the move continues. Earlier in the week it found support at around 1.6075, and the current move fell short of this line and stopped at 1.6085. The line could still be breached later on.

The British economy squeezed by 0.3% in Q4 2011, eroding a gain of 0.6% in Q3. In Q4 2010, the British economy also squeezed, but managed to rebound nicely in Q1 2011 and to show some growth later on as well. This time, another quarter of negative growth was recorded.

It’s important to remember that today’s figure will undergo two official revisions. Nevertheless, the first one has the strongest impact.

GBP/USD was trading under the critical 1.6165 line before the publication. This is the peak seen at the end of October. The pair  temporarily crossed the line and reached 1.6170, but immediately retreated and fell to 1.6138 before the publication.

For technical analysis and other events, see the GBP/USD forecast.

Positive signs have been recently seen from retail sales and even unemployment. Together with relatively high inflation, the MPC began shifting away from more quantitative easing and even hiking the rates became possible.

Everybody will need to reconsider now. Perhaps more pound printing will become an option again.

Another big event awaits the pair: the rate decision in the US, with Bernanke’s press conference.

See how the Fed can affect markets.