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UK's fiscal position 'is deteriorating'

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The UK's financial situation is getting worse, a foreign exchange specialist has warned.

According to HiFX, the pound has long been regarded as a "safe haven" currency while the debt crisis in the eurozone has persisted.

However, the Office for National Statistics (ONS) this week reported that during the second quarter of 2012, gross domestic product (GDP) in the UK fell by 0.7 per cent.

Andy Scott, HiFX's premier account manager, said this shows that the country's economic and fiscal position "appears to be deteriorating".

"Perhaps the comfort of knowing the Bank of England will stand behind the currency as a lender of last resort is what's driving investors towards the pound and UK government debt – it's certainly not the health of the economy," he observed.

Mr Scott said the GDP figures for the second quarter of the year are the worst since 2009 and the third successive three-month period in which economic output has gone down.

He suggested this will put additional pressure on government finances at a time when it is "struggling" to bring down the UK's budget deficit.

However, Mr Scott insisted it is still safer to transfer money to the UK than to many other parts of the world. This, he said, is why the pound is currently at a four-year high against the euro.

According to the ONS, the drop was fuelled partly by a 1.3 per cent slump in output in the production industries.

Meanwhile, a 5.2 per cent decline in construction sector output was recorded between April and June 2012, while the service industries saw a 0.1 per cent drop.

The CBI has described the figures as "very disappointing", with director-general John Cridland saying they show Britain's economy has failed to grow in the first half of 2012. However, he said there is potential for GDP to pick up later on in the year.

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