British Pound Tumbles 200 Points to 1.80 as UK's Darling Sounds the Recession Alarm

The British pound started out on a weak note at the start of trading on Sunday, as the currency plunged 200 points versus the greenback following the release of comments by UK Chancellor of the Exchequer Alistair Darling from an interview with the Guardian newspaper.
During the interview, Mr. Darling said that the UK economic conditions “are arguably the worst they've been in 60 years” and that the slowdown may be “more profound and long-lasting than people thought.” Looking at the latest economic data, there’s little reason to doubt Mr. Darling’s dour sentiment. The August reading of the purchasing managers’ index (PMI) for the manufacturing sector reflected a contraction in business activity for the fourth consecutive month, though the index did rise slightly to 45.9 from 44.1.

Meanwhile, the Bank of England’s reading of mortgage approvals fell to 33,000 in July, marking the lowest level since record-keeping began in 1999. Overall, there are literally no bright spots on the horizon for the UK economy, but nevertheless, the Bank of England is widely expected to leave rates unchanged at 5.00 percent on Thursday. However, it is also widely known that the central bank has sought to maintain a hawkish stance against inflation in an effort to keep the public’s expectations in check. Thus, a rate cut may not be on hand this week, but with Credit Suisse overnight index swaps pricing in over 75bps worth of cuts within the next 12 months, it’s simply a matter of time before the Bank Rate comes down.



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