Sterling Erases Gains On Stagnant UK Production

By Benjamin Spier,

THE TAKEAWAY: UK industrial production unchanged in April, down 1.0% on the year -> Dovish MPC member Posen reiterates call for stimulus -> Sterling erases earlier gains

UK industrial production was stagnant during the month of April, while factory production dropped -0.7% from the previous month. The industrial production cam in slightly worse than the expected 0.1% output increase, while manufacturing production was way below the -0.1% expected drop. Compared to April of 2011, industrial production is showing a long-term decline of -1.0%, according to the UK Office of National Statistics.

Basic pharmaceuticals led the way in declining UK output, dropping -6.0% during April. Meanwhile, computer, electronic, and optical production were up 8.1% for the month.

Continued signs of a contracting economy increase hopes that the BoE will add to its stimulus program in next month’s meeting. The usually dovish Adam Posen recently reiterated his calls for added stimulus, saying additional QE is necessary to boost the UK’s struggling economy. The BoE left its asset purchase target unchanged at 325 billion pounds in June’s meeting.

Although GBPUSD dropped following the stagnant industrial production, it was little more than a correction from a rally during the previous hours. Cable is down from yesterday’s high at 1.5581, as initial euphoria over the Spanish aid deal faded. Euro rallied against Sterling following the release, also correcting from earlier session declines.
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