Data reveals that the UK economy shrank by 0.2% in the closing months of 2011

On an extremely dovish note, the UK economy shrank by 0.2% in the last three months of 2011. The sterling struggled throughout yesterday with figures twice as bad as expected, which is a direct result of the Eurozone crisis that has been hampering the global Economies’ growth.

Mervyn King announced that the UK needs to increase export to lower UK trade deficit and to reduce the risk of recession.

The growth figures reinforce expectations that the Bank of England may inject more cash into the economy next month in an attempt to stimulate growth.

The IMF’s forecast for UK growth this year was cut by 1% to 0.6%. Although Britain is still expected to outperform Germany and France the situation in the Eurozone has really had a detrimental influence over the UK.

Germany paid the lowest yield on a 30-year bund at auction since the inception of the euro. The Bundesbank which conducts German Federal debt auctions sold 2.458billion at an average yield of 2.62%, which was down from 2.82% as the previous German finance agency received 5.042billion of bids on its 3 billion offers, leaving the auction with strong coverage as concerns over Greek debt-swap talks are stalling. USD came under severe selling pressure after a solid week of gains.

Ben Bernanke indicated another round of long-term quantitative easing and stated that interest rates could be on hold until late 2014. The reasoning behind the move is high unemployment and the risk of inflation falling short of 2%. 

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Institutions named in this article:

IMF: The International Monetary Fund - An organization of 187 countries, aimed at fostering global monetary cooperation, secure financial stability, to promote international economic cooperation, international trade, employment, and exchange rate stability. http://www.imf.org/external/index.htm