Despite the UK economy being poised on the edge of a triple dip recession and growth needing a serious kick up the rear the Bank of England’s Monetary Policy Committee may prove hesitant to initiate further stimulus methods after today’s data releases.
The latest statistics have shown that UK inflation remained at the highest level for nearly 8 months in December with consumer prices 2.7 per cent greater than a year earlier, well above the Bank of England’s 2 per cent inflation target.
Inflation has now been above the BoE’s 2 per cent target for three years, putting serious pressure on public spending.
After the report was released the Pound dropped against the US Dollar.
An economist with Investec Securities in London commented ‘Inflation will rise above 3 per cent over the coming months, which we expect to reduce the MPC’s appetite for further easing. They will inevitably look through that short-term blip and focus on the medium term, but it makes it uncomfortable’.
The inflation report compiled by the Office of National Statistics showed that utility prices were up 3.9 per cent on the same period of 2011, although fuel costs did decrease by 0.2 per cent.
The chief UK economist with HSBC, Simon Wells, also stated: ‘More money creation now risks further distorting financial markets and the economy for real gain. And another year of above-target inflation will strengthen the widely held view that the MPC has abandoned its inflation target. The hurdle for more monetary easing should be high.’
UK annual factory-gate inflation also posted a slight increase, from 2.1 per cent in November to 2.2 per cent in December.
On a more positive note, UK house prices increased in November by 2.1 per cent from a year earlier, 0.6 per cent higher than the gain recorded in November.
As of 10:30 am
The Pound to Euro exchange rate is currently trading at 1.2025
The Pound to US Dollar exchange rate is currently trading at 1.6075
The Pound to Australian Dollar exchange rate is currently trading at 1.5234
The Euro to US Dollar exchange rate is currently trading at 1.3367
The Euro to Pound exchange rate is currently trading at 0.8313
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