Sterling falls after shock growth dive fuels City fears of looming recession

STERLING took a hit today as currency traders digested the latest economic figures which suggest the chance of the UK falling into recession is rising.

The pound tumbled 0.44 cents against the dollar to $1.27 after the Office for National Statistics reported the economy shrank 0.4% in April compared to March.

A dramatic fall in car production and rising political turmoil were blamed.

Alessandro Capuano at Fineco Bank said: “Political uncertainty is finally taking a toll on the UK economy. After a resilient start to the year fuelled by Brexit stockpiling efforts, maintaining that momentum is proving a challenge.”

That 0.4% fall was far worse than the 0.1% decline forecast by the City.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Q2 GDP now looks set to be awful — we’re revising down our forecast for quarter-on-quarter growth to zero from 0.2%.”

That suggests the Bank of England could be spurred into cutting interest rates, though in general economists cautioned against reading too much into just one month’s figures.

Some car makers brought forward summer shutdowns to April, so production is likely to rebound in May.

Markets are pricing in a 30% chance of the Monetary Policy Committee cutting base rates before the end of this year. A rate rise that might boost sterling looks off the table at this point.

James Smith at ING said: “Most of this should only prove temporary, although rising uncertainty surrounding Brexit and the growing likelihood of an autumn general election means the Bank of England is unlikely to raise rates in 2019.”