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UK GDP set to fall 4% in early 2009

Lots of data yesterday in the UK, of particular interest was the Bank Of England inflation report which showed inflation at just 0.5% in two years…this means more interest rate cuts and the ever increasing probability of quantitative easing…it seems that the Bank of England will try a plethora of measures to kick start the UK economy and bring inflation back into line.  The immediate impact of this was a sell off in sterling against the majors- sterling was not helped by employment data as the
UK jobless figure rose to just under 2 million.  Another hammer blow was the rhetoric by Mervyn King which stated that the UK economy is in deep recession and that GDP will fall by 4% in early 2009.

Elsewhere, Canada posted their first trade deficit in 32 years as exports dipped especially in relation to the US- this is a far cry from the good times as surpluses bulged.  The deficit came in at C$0.46 billion in December and emphasises the seriousness of the economic slowdown globally- this data helped the CAD to drop quickly to 1.2511 from 1.2430 against the USD- Finance minister Jim Flaherty mentioned that the recent strength of the Canadian dollar has not helped…

In other data from
Canada- new home prices fell 0.1% which gave an annual increase of 0.4%- the lowest since 1997.  In the US the trade deficit shrank by 4% in December as imports and exports fell as global trade shrinks.

A rush back to risk aversion is highly evident in the last 24 hours as the
US financial stability plan fell short on detail- the Dollar and the Yen again benefited as equity market slumped and looked uncertain- this is now an ongoing theme between risk appetite and risk aversion…

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