NEWS FLASH – Inflation fall as IMF says more UK stimulus is needed

Currency

By on May 22nd, 2012.
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The Pound weakened against the Euro, dropping back to a low under 1.2350The Pound has been trading at the highest level against the Euro since November 2008 in recent weeks, while the UK currency also recorded 2012 highs versus the Australian and New Zealand Dollars, as well as the South African.

Sterling / Euro and US Dollar exchange rates

The Pound weakened against the Euro, dropping back to a low under 1.2350, while the UK currency also lost ground versus the majority of the 16 most actively traded currencies, after the International Monetary Fund said that the UK needs more monetary stimulus. A report from the Office of National Statistics this morning showed that UK inflation slowed by more-than-expected in April, falling to 3% from a year earlier, which gives the Bank of England the scope to introduce quantitative easing to support the economy.

The rate of inflation is within the government’s limit for the first time since February 2010 and speculation will build of further QE to come, undermining Sterling sentiment. The governor of the BoE Mervyn King said last week that the UK inflation rate will fall more slowly than previously forecast but slack in the economy is clearly putting downward pressure on prices. The UK economy has entered its first double-dip recession since 1975 and the outlook is worsening.

The Pound has been trading at the highest level against the Euro since November 2008 in recent weeks, while the UK currency also recorded 2012 highs versus the Australian and New Zealand Dollars, as well as the South African. Although the rate has dropped this week, it still represents a good time to secure a rate selling Sterling, particularly if things get worse for the Pound.

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