U.K. Prelim GDP Down 1.5% In Q4

Release Explanation: Gross Domestic Product (GDP) determines the total worth of all goods and services produced by the economy. GDP is the broadest measure of activity and the primary gauge of the economy's health. To foreign investors, a strong economy is viewed favorably as it spurs investment opportunities in the domestic stock and bond markets. More importantly, the central bank is more likely to raise interest rates in the face of a strong and growing economy.

Trade Desk Thoughts: In the fourth quarter, the U.K. economy contracted by 1.5%, a much stronger decline than the expected 1.2%. In the third quarter, the U.K. economy posted a -0.6% read. The two consecutive quarters indicate the U.K. economy has officially entered into a recession, similar to the Euro-zone and U.S. economies.

The GDP was driven down by services and production industries output in the fourth quarter. Total production output weakened further in the fourth quarter, decreasing by 3.9 per cent, compared with a fall of 1.4 per cent in the previous quarter. Manufacturing output made the largest contribution to the slow down, falling by 4.6 per cent compared with a 1.6 per cent decrease in the previous quarter. Services output weakened by 1.0 per cent compared with a fall of 0.5 per cent in the third quarter.

This is the biggest decline recorded in a quarter since 1980. The U.K. GDP is down from one year ago by 1.8%, plunging from nearly 3% in 2007. According to the Bank of England estimates, the downturn will continue in the first part of 2009.

Forex Technical Reaction: The pound had a very strong reaction to the news release, making a 100-pip candle. Since the Asian session started, the pound is down 300 pips, breaking below a 23-year old low. Against the yen, the pound also trades near the lowest value in history.