Currency Watch: A bad week for the pound

The week after the Budget saw the business news agenda move away from the focus on individuals and back to looking at the state of the UK’s economy as a whole.

Things started promisingly, with the coalition government announcing that they had negotiated £500 million worth of investment from South Korea.

It is a sign of the times that the West greets news of this kind with such triumphalism. The fact that Asia’s third largest economy has committed to the UK economy through infrastructure and manufacturing was presented as a key development in the UK’s road to recovery.

However, this optimistic note was quickly remedied as the ONS weighed in with some poor 2011 Q4 UK GDP figures.

Growth has been revised lower on services numbers and this means that we must be slightly more circumspect when looking at Q1, given increases in energy prices and the likely dampening effect that this will have on household spending.

There was nothing circumspect about the OECD appraisal of the situation, which came out on Thursday.

The organisation predicts that the UK will enter a technical recession by the end of Q1 2012, forecasting a -0.4% contraction to follow the -0.3% number for Q4 of 2011.

All of a sudden that South Korean investment announcement must have felt like a long time ago for the government.

Whether these OECD predictions are proved right or otherwise, it’s clear that the UK growth profile will continue to “bump along the bottom” in 2012, we expect that no single quarter will see over 0.5% growth this year.

Just to rub salt into the wounds the housing market also looks to be suffering. Nationwide reported the first annual property value drop in 6 months, as the average house price fell by 1% in the year on year comparison for March.

Unsurprisingly sterling slipped further against EUR and USD this week, despite the fact that both the US and the Eurozone have reported their own economic problems in the last seven days.

Perhaps the focus will move back to these problems next week. Either way, the West continues to stumble its way forward and will continue to look east for support.

Jeremy Cook is chief economist at World First foreign exchange