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2013-03-19 14:56 Forex News – Higher UK inflation may not prevent more QE
March 19, 2013 2:56 pmVideo
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The British pound received a slight boost against the dollar and euro on Tuesday after UK inflation data showed an increase to a nine-month high in February .
GBPUSD hit an intraday high of $1.5143 and EURGBP fell to 0.8551.
Markets saw this rise in inflation as reason that the Bank of England may shy away from adopting looser monetary policy. These stimulus measures that involve asset purchases tend to weaken a currency.
However, some analysts do not think it will deter the BOE from more QE.
Rob Wood from Berenberg Bank said the following:
“The rise in inflation to 2.8 percent means consumption is going to struggle to get going this year but it shouldn’t prevent further monetary stimulus. The economy is going nowhere fast and the BoE said it would look through above-target inflation.
“It’s growth or bust for the Chancellor who delivers his budget on Wednesday. Whether of its own volition or because the Chancellor tweaks the inflation remit, we think further stimulus is coming. Inflation will probably rise above 3 percent in the next few months but the Bank of England should ignore that.”
Howard Archer from IHS Global Insight said:
“More pressure on households and disappointing but unsurprising news for the Bank of England… Furthermore, it looks highly likely that consumer price inflation will move above 3.0 percent during the second quarter. This is worrying for growth prospects over the coming months, as much will depend on how much consumers spend.
“Indeed, producer price inflation showing a sharp rise in imported input prices in February highlights the upward pressure on prices coming from sterling’s recent sharp fall.
“However, the rise in consumer price inflation to 2.8 percent in February is unlikely to stop the Bank of England from undertaking further stimulative action sooner rather than later.”
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