Pound Suffers As BoE Governor Touts UK Stagflation, EUR And USD Steady

Published: Wednesday, 14 November 2012 14:00 BST - Written by Minesh Chaudhari

STORY LINK Pound Suffers As BoE Governor Touts UK Stagflation, EUR And USD Steady

Bank of England Governor Mervyn King’s words of earlier today had their usual effect of raising loud alarm bells regarding the state of the UK economy, triggering losses for Sterling against the majority of the other major currencies. King summoned up the spectre of stagflation for the struggling British economy, stating in his post BoE Inflation Report press conference that the UK economy, ‘faces the rather unappealing combination of a subdued recovery with inflation remaining above target for a while’. King also cautioned that Britain would ‘zig zag’ in and out of economic growth in the near term and that levels of economic activity would hold below their pre-Credit Crunch levels for at least another 36 months.

The Bank of England’s Quarterly Inflation Report added to today’s Sterling-negative news; the Bank trimmed its projections for UK economic growth to a meager 1% next year. Analysts’ expectations had been for a healthier level of productivity, following Q3 2012’s strong GDP data. However, the report dismissed this upward blip in activity, attributing it to increased consumer spending due to one-off events including the Queen’s Jubilee and the London Olympic Games.

Elsewhere, there was good news for the euro earlier today with a successful Italian bond auction which saw the interest rate on the struggling nation’s 3-year bills tumble to their lowest level since the middle part of 2010. The news has helped the single currency strengthen against the Pound, taking the GBP USD exchange rate down to 1.2437 this afternoon.

Meanwhile, the latest US Advance Retail Sales numbers, released this afternoon, showed an annualised drop-off of 0.3% versus analysts’ expectations of a -0.2% showing. The disappointing showing could see the GBP USD edge upwards, as investors price-in an increased chance of an extension to the US’s Quantitative Easing programme in the States.

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