Second-quarter GDP figures dent optimism for pound

The pound fell on Friday against both the dollar and the euro after the first snapshot of the UK's output in the second quarter showed a far less resilient economy than the market had hoped or expected.

The Office for National Statistics reported its first estimate of GDP, saying UK Gross Domestic Product, or GDP, fell by 0.8 per cent quarter on quarter in the three months to June after a 2.4 per cent decline in the first quarter. This was the fifth consecutive quarterly decline and was much steeper than the average 0.3 per cent forecast expected ahead of the announcement by City economists.

"These figures kill any hopes for recovery in the second half of the year and we are going to have to wait until 2010 before we see the numbers turn positive," says Alex Dunn, senior trader at Caxton FX. "Investors are consequently taking a more cautious view on the pound and we expect that the rate will tread water for a time. Nonetheless the worst of the recession has probably passed and investors are prepared to take on more risk and consequently we believe we will see more dollar weakness against the pound in the second half."

After the announcement, the pound fell to $1.6445 and €1.1576 compared with $1.6479 and €1.1639 at the close of trading on Thursday.