The Bank of England’s inflation report was quite dovish and also included a complaint about the strength of the pound. He also mentions that more QE could be on the way.
GBP/USD reacts to the news with a slide towards the 1.5780 levels. Update: cable already touches 1.5862.
Some points from the report (updated):
- Near term growth forecast cut.
- Q3 growth (+1%) was due to one time events – the Olympic Games.
- Q4 might see another fall in output.
- Inflation expected to be 1.8% in 2 years.
- The MPC is open to more asset purchases – more QE.
- Slow recovery unless the pound depreciates.
- Unfavorable environment of higher inflation and lower growth.
Earlier, the UK reported a rise of 10K in jobless claims in October, higher than expected. The unemployment rate for September dropped to 7.8%, but this still might be an Olympic effect.
David Blanchflower, former MPC member, says that growth forecast is overly optimistic.
The inflation figures reported yesterday indeed showed a rise of inflation. For more on the pound, see the pound dollar forecast.
