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Pound Falls As Triple Dip Fears Fuelled

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Pound Falls As Triple Dip Fears Fuelled

Post  Panda on Fri 1 Mar - 16:15

Pound Falls As Triple Dip Fears Fuelled

The pound falls beneath $1.50 for the first time since the
early days of the coalition, after a shock drop in manufacturing.

3:23pm UK, Friday
01 March 2013

So far this year, sterling has lost 7.5% against the

  • Sterling has fallen to a two-and-a-half-year low against the
    dollar after manufacturing figures for February revealed a fall in output.

    The closely watched Markit/CIPS purchasing managers' index showed a slump in
    activity to 47.9 - well below the 50 level which separates growth from

    It was the first time since last November the sector's activity shrunk, and
    followed 50.2 in January.

    The value of the pound slipped following the data, and fell below $1.50 on
    Friday afternoon - its lowest since the middle of 2010.

    Sterling has only been beneath the $1.50 mark for four of the 200 years since
    the US Declaration of Independence.

    The last time it was at this level was briefly during the 2010 election and
    coalition-building process, and before that the 2008/09 recession.

    Chris Williamson, chief economist at Markit, said the manufacturing data
    increased the chance that Britain will slip back into recession.

    "The return to contraction of the manufacturing sector is a big surprise and
    represents a major set-back to hopes that the UK economy can return to growth in
    the first quarter and may avoid a triple-dip recession," he said.

    "The data so far this year point to manufacturing output falling by as much
    as 0.5%, meaning a strong rebound is needed in March to prevent the sector from
    acting as a drag on the economy as a whole in the first quarter."

    The struggling sector contributed to the UK's worse-than-expected 0.3%
    decline in output in the fourth quarter of last year, and a negative reading for
    the first quarter of 2013 would see the UK enter a triple-dip recession.

    Nawaz Ali, a market analyst with Western Union, said the manufacturing data
    could increase pressure on the Bank of England (BoE) to launch a new round of
    asset purchasing - or quantitative easing - as early as next week.

    "The data is a major setback for sterling and the size of the manufacturing
    decline indicates that there is still a chance the British economy may suffer an
    unprecedented triple-dip recession," he said.

    "The data also adds to growing concerns that not only could the BoE re-start
    monetary printing in March, the central bank's new flexible inflation strategy
    puts it in a position to launch a prolonged period of asset purchases, similar
    to what the US have done and what the Bank of Japan is planning to do."

    More quantitative easing is likely to hit sterling further because it
    increases its supply and drives the currency's exchange value lower.

    So far this year, sterling - which was also hit by Moody's downgrade of the
    UK's credit rating - has lost 7.5% against the dollar.
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