Tuesday, July 13, 2010

UK CPI in Check

UK inflation was an area of my focus due to the large depreciation of the Pound, importance of the banking sector in the overall economy, and quantitative easing pursued. Even after all of that... inflationary pressures seem to have stalled (for the time being at least). Daily Markets details:

U.K. annual inflation slowed in June on fuel prices, suggesting that the central bank will keep the interest rate at the current level well into 2011.

Annual inflation slowed to 3.2% in June from 3.4% in May, data from the Office for National Statistics showed Tuesday. Inflation slowed for the second straight month. Still, the figure is above the central bank’s 2% target. Economists were expecting the annual rate to slow to 3.1%.

Falling petrol and diesel prices are by far the main drivers to the downward pressure to consumer price annual inflation between May and June, the ONS said. At the same time, the main upward pressures to inflation were the sharp rises in air fares and increases in insurance premiums. Clothing and footwear prices recorded the biggest drop for June.

To underpin the fragile economy amid severe fiscal consolidation, the Bank of England had left its key interest rate unchanged at a historic low and maintained the size of the quantitative easing at GBP 200 billion on July 8. The central bank is more likely than not to keep interest rates down at 0.50% into 2011 as recovery remains bumpy and gradual with major fiscal tightening and the Eurozone’s problems posing serious threats to UK growth prospects, said IHS Global Insight’s Howard Archer.

Source: Stats.Gov.UK