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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.