Bank of England Issues Grim Inflation Prediction Sending GBP EUR Rate Lower Again

Published: Wednesday, 13 February 2013 18:00 BST - Written by John Cameron

STORY LINK Bank of England Issues Grim Inflation Prediction Sending GBP EUR Rate Lower Again

This morning’s Bank of England quarterly inflation report has stuck another knife into the already heavily punctured midriff of the Pound Sterling. Bank of England Governor Mervin King used the set piece announcement to highlight the danger of ‘stagflation’ in coming months for the UK economy. King warned of significant ‘downside risks’ to come for the UK economy and went on to predict that inflation would rise to above 3.0% during the Summer period and would not be dropping back down to the government’s 2.0% target for another two years.

The BoE report, and in particular its predictions of future above-target levels of inflation, shed further light on Governor-in-waiting Mark Carney’s ‘road to Damascus’ appearance in front of the Treasury Select Committee last Thursday. It appears likely that Carney, who was previously renowned for his advocacy of ultra-loose central bank monetary policies, decided to adopt a more moderate stance on QE and interest rate cuts during his questions and answers session due to the fact that he had been made aware of these official inflation forecasts.

The Pound has suffered in the markets in the aftermath of King’s statement, with the Pound euro exchange rate (currency : GBP EUR) dropping down to 1.1512 earlier. Sterling has posted significant losses against all of the other sixteen most-actively traded global currencies as institutional investors took flight and shifted their funds out of GBP-denominated assets.

Elsewhere, this afternoon’s US Retail Sales data for January showed at a modest 0.1%, exactly as per expectations. The release is down from December’s counterpart figure of 0.5%, but the US Dollar has managed to hold steady, with the Pound US Dollar exchange rate (currency : GBP USD) tipping the scales at 1.5544 earlier.

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TAGS: American Dollar Forecasts Currency Predictions Dollar Poun Forecasts