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Sterling Weakens on Marginally Softer UK Inflation Report

Sterling Weakens on Marginally Softer UK Inflation Report

David Schutz,

UK CPI as expected on the month, weaker on the year -> Eurozone developments overshadow UK growth prospects -> Cable falls on CPI release

UK inflation in April came in as expected on the month at 0.6%, the UK stats bureau said today. The consumer price index rose 3.0% when compared to April 2011, which was softer than the expected 3.1% rise.

The Bank of England’s most recent monthly report said inflation is expected to fall down below the bank’s target of 2% over the next two years.

Speaking today ahead of the release, dovish Bank of England member Posen said inflation has been a bit slacker than hoped. Posen recommended that the Bank of England intervene more robustly in markets, adding that Euro-area turmoil has hampered Europe and the UK’s ability to inject stimulus into markets.

BoE Governor Mervyn King recently that growth prospects in the UK are now lower than they were three months ago, adding that the UK cannot qualify the damage than would be done by a breakup of the Euro. Mr. King added that even the threat of Euro-area risk is enough to slow UK growth.

Today’s softer inflation reading relieves Mr. King of the task of writing a letter to the government to explain the numbers.

Sterling_Weakens_on_Marginally_Softer_UK_Inflation_Report_body_BOE.png, Sterling Weakens on Marginally Softer UK Inflation Report

Sterling weakened against the US Dollar following today’s release. Losses against the Euro were quickly erased, but Cable remained well sold.

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