This week, the media is focused on the U.S. and China as the two countries kick off a series of high-level discussions that will focus on Beijing’s unease about U.S. Treasury bonds and Washington’s desire to reduce China’s reliance on exports.
But another economy worth looking at is London. The U.K. is suffering much worse from the global economic recession than once thought. In fact recent data showed the British economy contracted by twice as much as economists had forecast, leaving the country mired in recession and killing off any hopes of an imminent recovery.
One major area for concern for U.K. officials is lending by banks. As reported in the BBC, Chancellor Alistair Darling is urging banks to lend more to small firms
“In its latest figures, the British Bankers' Association (BBA) said total lending to small companies rose £391m in June, up from May's £133m increase. But Alistair Darling has said he is ‘extremely concerned’ that banks may be charging firms too much for loans.”
Economists are now concerned that the British economy will lag behind the U.S. and Asia in recovery.
British’s dismal contraction in economic growth underscores just how severe the recession has taken hold in the country. “The British data provide a really nasty and disappointing shock, with the rate of contraction slowing far less markedly than expected," said Howard Archer, chief U.K. and European economist for IHS Global Insight.
The second quarter contraction was fueled by continued drops in construction, manufacturing and the service sector, undercutting hopes of a turnaround in what has become Britain's worst recession in at least 30 years.
RTT News reported, “output in manufacturing was down 0.3%, compared with a 5.5% slump in the first quarter. Services output fell 0.6% after declining 1.6% in the previous quarter. Construction output decreased 2.2%, compared with a 6.9% fall in the previous quarter.”
The pound fell by about 50 pips after peaking above 1.6500. Currency trading expert Harinder Singh of Currency Profits Trader says, “I see a lot of problems for the British economy and hence for the pound sterling.”
Specifically, Harinder sites concerns regarding the U.K. budget deficit, which could approach 100% of GDP, and some banks and insurers that STILL may not be solvent without additional help from the government.
“The situation is so severe, the International Monetary Fund (IMF) has warned the U.K. to control its deficit spending, otherwise it could hurt the currency,” says Harinder.
That’s way he’s urging his subscribers to watch the pound carefully for the right trading opportunity. If you’d like to learn more about trading currencies, you can join Currency Profits Trader right here.
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