February 15, 2010
UK Economic News
Following on from last week, the Pound declined against the majors, after the Bank of England cut its forecast for economic growth and said that inflation will undershoot the 2% target for the next two years, suggesting that policy makers will keep interest rates at a record low and resume emergency stimulus. Annual gross domestic product growth will reach about 3.2% in the second quarter of 2011, compared with about 4% previously.
Inflation is expected to peak at about 3.3% before slowing as low as 0.95 and staying below the 2% goal until 2012. The statement said "the committee judges that while the most likely path for growth is somewhat weaker, some of the downside risks are smaller than in November. It is more likely than not that inflation will be below the target for much of the forecast period, but the risks are broadly balanced by the end."
Policy makers must weigh up the threat of accelerating inflation in the short-term against the risk of a relapse in growth, after the economy stumbled out of the recession in the fourth quarter. Uncertainty surrounding the prospect of a hung parliament combined with the expanding budget deficit also clouds their forecasts at the same time when investors are becoming increasingly uneasy about European sovereign debt.
