UK Economy Emerges From Recession In May Though Remains Very Weak

By Tzu-Wen Chen,

THE TAKEAWAY: [U.K. economy emerges from recession though remains weak] > [Economy to stay flat, further stimulus possible] > [ GBPUSD weakens ]

The British economy emerged from recession in May, though economic growth remains weak. According to the National Institute of Economic and Social Research (NIESR), gross domestic product (GDP) rose a meager 0.1 percent in the quarter to May, following five consecutive periods of contraction after the Institute downwardly revised its GDP estimate for the three months to April to contraction of 0.1 percent from 0.1 percent growth previously reported.

The NIESR noted that “with the economy stagnant, the negative output gap is likely to widen further”. The Institute added that it expects the U.K. economy to remain broadly “flat” over the next six months with economic recovery to begin to take hold in 2013. While the recession appears to be over, the period of depression, defined as a period when output is depressed below its previous peak, is likely to continue for some time, with output unlikely to exceed its peak in early 2008 until 2014.

The GDP report follows on the back of the Bank of England’s decision last week to hold the official bank rate at 0.5 percent and the size of the asset purchase program unchanged at £325 billion. With GDP growth expected to remain weak in the near term, the possibility of further monetary stimulus in the coming months remains on the table.

GBPUSD 1-minute Chart: June 12 , 2012

Chart created using Market Scope – Prepared by Tzu-Wen Chen

The pound weakened against the greenback in the minutes following data release, with the British economy tentatively emerging from a deeper-than-expected recession. At the time of this report, the GBPUSD pair was trading at $1.5524 to the pound.

--- Written by Tzu-Wen Chen, DailyFX Research
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