U.K. continues to worry about its deficit and exposure to Dubai
Debt woes from late 2009 continued to affect risk sentiment during the start of 2010, and weighed down higher-yielders such as the pound. Traders were reluctant to buy up those currencies whose economies are also in debt trouble. As of January, the U.K.’s debt-to-GDP ratio sat at 60.2%.
UK still stuck in recession for Q3, worries about stagflation
CPI figures revealed that inflation shot past the BOE‘s 2% target, as the headline figure printed a 2.9% annual increase while the core figure showed a 2.8% year-over-year rise. Since the U.K. was still suffering from negative economic growth and poor employment, this placed the economy in danger of stagflation. With this phenomenon, trying to solve one problem usually exacerbates the rest.
The final GDP report for the third quarter of 2009 revealed that the U.K. is still stuck in recession. This left the U.K. as the only G20 economy with negative quarterly economic growth. Components of the report showed that consumer spending was still weak, despite the holiday season.
Polls reveal greater possibility of a hung parliament
Early election polls hinted that none of the political parties would hold a majority of the seats in parliament. Such stalemate political situation would make it more difficult for the British parliament to pass legislation that would help solve their country’s economic problems.