The final week of November starts with Alistair Darling being forced to admit that the credit crunch has now sent the UK into a severe recession. In the Budget six months ago, he pencilled in a strong recovery for 2009, that however, now seems unlikely and it appears that Darling will have to concede that the downturn will be harsh and is expected to last for a number of years. Rumours out over the weekend are that VAT may be cut by 2.5% as part of an emergency package aimed at helping the UK economy. PM Gordon Brown said ‘substantial’ measures would be proposed in the pre-Budget report this afternoon to pump money into the economy.

With plenty of data out this week, the markets promise to remain volatile, with UK GDP out figures on Wednesday, we could find ourselves in a technical recession, which would not bode well for a currency already struggling. Further data comes from Nationwide, in the form of housing prices, which is once again forecast to show a decline. Analysts are suggesting that the cross may well test fresh all-time lows this week and with speculation mounting that the BOE will once again cut rates aggressively in early December, it appears Sterling will struggle to regain any strength in the short-term. This is particularly because the ECB have stated that they do not see deflation as a threat, which means while they are likely to continue to decrease the cost of borrowing, it will be a gradual process.

Overall, despite the already low mid-market rate, it seems that things are going to get worse for the GBP/EUR cross before it makes any significant recovery.