The UK has taken two steps back over the past 72 hours: one horological and economic. It was fitting that the clocks were put back an hour on this of all weekends: a country buying more time as it scrabbles to make sense of some truly atrocious data.

As most, if not all, of you will know the GDP figure for the UK was released on Friday and portrayed a country in a more terrible place than anybody could have imagined. The consensus was for a 0.2% jump in the value of the UK’s goods and services. We instead got a -0.4% decline, extending our worst recession post WW2 and seeing the UK slip behind Italy in the league of countries’ economic value.

Sterling was pole-axed by this release with falls felt against every G10 currency. Against the euro it fell from 1.11 in the minutes before the announcement to a close of 1.0870 and against the dollar from 1.67 to 1.6310.

We are still long term sterling bulls but believe that this will get worse before it gets better. One major factor for the sterling fall on Friday was the belief that an increased asset purchase plan will be put into place by the Bank of England in November, we believe that they will increase by something like £50bln. This of course also puts back our forecasts that we will see an interest rate rise in the UK in Q1 or Q2 and instead are now looking for no change until July of next year.

Although there is not much data due today an speech by MPC member Adam Posen to the Cass Business School entitled “A non-monetarist approach to quantitative easing” may see sterling suffer overnight. Mr. Posen has been very dovish of late and was in favour of increased QE before Friday’s GDP announcement.

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