The UK CPI figures came in lower than expected. Inflation was generally expected to be stay at 3%, but instead fell to 2.8%. This is the lowest it has been since November 2009 and the first time it has fallen below 3% in nearly two and a half years.
The minutes from the BoE meeting showed a stronger support for more QE than many economists had expected, and was the first 5-4 split on the MPC since June 2007. However now on the back of this 2.8% inflation figure they may hold back on QE for the time being.
The BoE decided in May not to extend QE purchases largely because inflation seemed to be slowing more than expected. MPC members cited a fall in commodity prices and signs of less generous wage settlements as evidence of weaker inflation in the short term, but also warned that risks to Britain from the euro zone debt crisis had intensified significantly. The minutes stated, “The likelihood of a disorderly outcome looked to have increased, and that could have a significant effect on global demand and the stability of the banking system.”
It emerged last night at the G20 summit that the European leaders are set to announce the full details of the €700 plus billion bail out of Spain and Italy. The two rescue funds in question are to be used to buy the debts of these troubles economies. The interest rates on their recent borrowings is now of course unsustainable.
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