Acting Managing Director of the International Monetary Fund John Lipsky, cuts forecast for 2011 growth in the UK economy from 2% to 1.5% but backs government's approach to deficit.  Lipsky gave a news conference this morning speaking about the UK economy. 

Here are some of the highlights in the speech:

  • Lipsky: IMF cuts forecast for 2011 growth in UK economy from 2% to 1.5%
  • Lipsky: UK need not change its current fiscal policies as latest weak growth and rising inflation seems temporary
  • Lipsky: UK recovery will occur at a moderate pace (2.5% annual growth); prices, housing have weighed on confidence
  • Lipsky: UK GDP growth around 1.5% in 2011, rising to 2.5% in medium term
  • Lipsky: CPI above 4% for most of 2011, near target by end of 2012
  • Lipsky: Unemployment in the UK remains unacceptably high
  • Lipsky: optimistic on potential growth in the UK; UK productivity growth should accelerate
  • Lipsky: endorsed UK's present deficit cutting plans, but suggested pursuing a new approach if problems linger
  • Lipsky: if UK loses growth and inflation eases then BOE needs to pursue further QE, along with tax cuts aimed at the poor
  • Lipsky: if inflation stood high with weak growth then BOE would need to raise rates faster to tackle a shortage of capacity
  • Lipsky: if growth regained strength then BOE would need to continue raising rates at a gradual pace

The weakness in economic growth and rise in inflation over the last several months was unexpected. This raises the question whether it is time to adjust macroeconomic policies.  The answer is no as the deviations are largely temporary, IMF said.

GBP/USD is trading near the lows of the day at 1.6380, down 43 pips -.25%. 

News from the IMF this morning has weighed a bit on the GBP. 

The big news traders are awaiting is the BOE interest rate decision on Thursday June 9 at 7AM EST.  Even though no one expecting them to raise interest rates, it will be interesting to dissect the statement for clues on dissenting members and possible future rate hikes for the rest of 2011.

Technical Corner:

GBP/USD currently @ 1.6380

Weekly support pivot @ 1.6290, 1.6157

Weekly resistance pivot @ 1.6551, 1.6679