U.K. economic growth slowed to 1.6% year-over-year from 2.3% in the first quarter, which was the slowest pace since 2001. Gross domestic product rose 0.2% in the three months through June, as the housing slump and fall out from the subprime crisis saw construction, manufacturing and financial services fall. The economy is steadily approaching a recession as overall production fell 0.5% in the second quarter. Inflation at 3.8% and above the BoE’s 3% threshold has prevented the central bank from cutting rates further in order to soften the landing of the economy. Higher energy and food costs are curbing consumer spending which saw retail sales fall 3.9% in June. However, the service sector which accounts fro 75% of the economy realized mild growth improving to 0.4% from 0.3%. The recent 7-1-1 vote at the last policy meeting to keep rates unchanged and shows the MPC’s lack of direction as slowing growth and rising inflation make their decision difficult and will most likely lead to interest rates being left unchanged for the remainder of the year. – John Rivera, Currency Analyst
