Page last updated at 12:30 GMT, Friday, 26 February 2010

Pound falls on UK recovery data

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The pound has fallen sharply against the euro despite UK growth figures being revised upwards.

At noon, sterling was down two-thirds of a cent against the euro at 1.12 euros, having risen before the latest GDP data was released.

The pound also fell against the dollar, though it remains up from the nine-month low recorded on Thursday.

Analysts blamed underlying concerns about the weakness of the recovery and government borrowing for the falls.

The revised UK GDP figures released on Friday showed that the economy grew by 0.3% in the last quarter of 2009, up from the initial estimate of 0.1% growth.

"Markets anticipated that the GDP number would be good," explained Jeremy Stretch, currency strategist at Rabobank.

"But growth of 0.3% on its own is nothing to write home about."

Once it had been confirmed that the UK had emerged from recession at the end of last year, attention had turned back to concerns over the size of the budget deficit and the underlying weakness that still exists in the economy, Mr Stretch said.

Public finance fears

Last week, the threat of inflation was again raised with figures showing that UK inflation had accelerated to 3.5%.

Public finances have deteriorated further after the government borrowed another £4.3bn in January to plug the growing hole in the UK's finances.

The UK's deficit was 11.8% of GDP last year and is forecast to climb further in 2010 to levels similar to that of Greece.

Bank of England governor Mervyn King this week told MPs that he believed there was no danger of a downgrade to the UK's current AAA credit rating.

Some observers have suggested that the political uncertainty facing the UK is also contributing to sterling's weakness.

Opinion polls suggest that the lead of the Conservative Party over the governing Labour Party is narrowing.

This increases the prospect of a hung parliament - seen as troublesome for struggling economies as it makes it harder for whoever is in power to act quickly to tackle economic problems.

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