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Pound falls to $1.20 as UK economy shrinks for first time since 2012

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
United States dollar bills and UK pound sterling coins. Photo: Joe Giddens/PA Images via Getty Images

The pound fell sharply against the dollar and euro on Friday after new data showed the UK economy unexpectedly shrunk in the second quarter of the year.

The Office for National Statistics said on Friday that its initial estimate suggested UK GDP fell by 0.2% between April and June 2019. It marks the first quarterly contraction in economic activity since 2012.

The GDP figure was worse than expected, with economists forecasting 0% growth in the second quarter. The contraction has fuelled fears the UK could be on the brink of tipping into a recession, which is two consecutive quarters of declining growth.

The pound fell sharply after the data was released. Sterling was down 0.3% against the dollar to $1.2097 (GBPUSD=X) at 11.50am UK time. The pound was down by 0.4% against the euro to €1.0794 (GBPEUR=X) at the same time. The fall in both pairings marks a return to post-referendum lows.

The pound fell sharply against the dollar after UK GDP was announced. Photo: Yahoo Finance UK

Hamish Muress, a senior currency strategist at OFX, said the pound’s fall “is a reminder to businesses and market observers that the pound can still react to market data like times of old, and is not trading purely on Brexit headlines.”

Rehan Ansari, head of FX risk management & derivatives at Caxton FX, said: “Today’s figures will mount further pressure on the pound as the market evaluates whether this will warrant an adjustment to monetary policy. Any loosening in policy at current levels will only drive Sterling lower.”

Muress said: “Looking forward, and whilst the House of Commons is still on recess, the next opportunity for the pound to find some solace could come at the G7 summit in Biarritz over the August Bank holiday, but for investors two weeks can be a very long time.”