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Thursday 22nd of July 2010
May 12, 2010    

Bank of England unveils Quarterly Inflation Report

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by Kay Murchie

In its latest Inflation Report, the Bank of England is predicting that inflation would remain above the 2% target for the remainder of 2010.

Last month, it was revealed the UK’s rate of inflation rose to 3.4% in March, up from 3% in February.

The CPI inflation rate is a benchmark for the Bank of England’s rate-setting committee and as a result, the Bank has suggested that interest rates will remain at the historic low of 0.5% for some time.

“There are still no indications that the [Monetary Policy] Committee is anywhere close to tightening policy,” according to Vicky Redwood at Capital Economics.

The forecast came as David Cameron faces his first full day as the new Prime Minister after his party and the Liberal Democrats formed Britain’s first coalition Government since 1945.

The Bank’s Governor, Mervyn King, endorsed the new Government’s deficit reduction proposals, calling them “strong and powerful” and said the plans for spending cuts worth £6 billion this year were “sensible”.

Meanwhile, the Bank’s report came on the same day the Office for National Statistics (ONS) revealed that UK unemployment rose to a level not seen since December 1994.

According to the ONS, the number of people unemployed in the UK rose by 53,000 to 2.51 million in the three months to March.

The Bank’s report sent the pound down against the US dollar to $1.4910.

According to Jeremy Cook at World First, the currency exchange broker: “Mervyn King has a terrific record of weakening the pound when he makes a speech. The overriding theme of the Inflation Report was that of uncertainty over the prospects for the UK economy; it doesn’t reflect the plans for the new government however.

“Combined with the 16-year high unemployment figures published earlier today, David Cameron and his team have been provided with a great picture of where the UK economy currently sits: in a bit of a ditch,” added Mr Cook.

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