Will Widening U.K. Budget Cripple Recovery?

British Pound bulls should not get too excited about this week’s rally.  Short-term, U.K. production may have shown some improvement, but longer-term there is a deficit to tend to.

The GBP USD posted a big gain for the week. Strong equity markets provided most of the support but the market surged on Friday following news that U.K. production was better than expected.

This is all good news over the short-run, but the U.K. economy is still going through a contraction while the budget deficit is widening. Traders may ask for more evidence of a bottom in the economy before beginning a new uptrend.