The UK economy expanded only 0.4% in Q1 (matching consensus), its slowest rate of growth since 2005. Business services were particularly weak and fell to their lowest level of activity since 2003. The report follows a gloomy revelation from the Bank of England that inflation jumped to 3% in April, thereby precluding the BoE from intervening with rate cuts. Bloomberg:
“Firms have cut back on investment sharply, and that’s only natural when you have the biggest financial shock since the Great Depression,” said Dominic White, an economist at ABN Amro Holding NV in London and a former U.K. Treasury official. “We’re looking at a weak picture, and the odds of a negative second quarter are fairly high.”
The Bank of England is trying to steer an economy threatened by slowing growth and faster gains in consumer prices. While inflation jumped the most since 2002 last month, optimism among U.K. households fell to the lowest in more than 15 years and billionaire investor George Soros said this week the U.K. may fall into a recession.
The pound was little changed after the release and traded at $1.9812 at 12:08 p.m. in London. Against the euro, it traded at 79.45 pence.
This adds to the bad news for US businesses, which are running out of foreign markets to save them. Continental Europe is also struggling, according to a Royal Bank of Scotland Group report. Emerging markets look to be the last hope for struggling multi-nationals, but as crippling inflation begins to undermine easy-money policies in China, its not certain how much longer Asia can carry the baton.