Pound hit by bigger than expected contraction in GDP

The pound has weakened notably against the euro and the dollar this morning after first quarter GDP figures showed the UK economy has shrunk by 1.9%. Analysts had predicted that the economy would contract by 1.5%, so the news is much worse than anticipated. To give it some historical context, today's fall is the biggest quarterly decline in GDP since the third quarter of 1979.

This is now the third quarter of negative growth in GDP, confirming that the British economy remains in deep recession. The biggest factor in the contraction is the decline in the manufacturing sector, which shrank 6.2% in the first three months of the year, having fallen 4.9% in the previous quarter. There appears to be a fresh flight to safe-haven currencies from the pound as renewed scrutiny of Chancellor Alistair Darling's growth forecasts begins. As well as the dollar, another safe-haven currency, the Yen, has also been particularly favoured by investors.