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BoE paints gloomy picture

BoE paints gloomy picture

In its quarterly Inflation Report on Wednesday, the Bank of England forecast that the economy will barely grow this year and cut its projections for future years, although it appeared in no hurry to pump more cash into the economy or to cut interest rates. GDP growth was forecast as flat this year and rising to about 2% by the end of 2013, down from the 2.3% projection issued in May. The UK’s short-term inflation forecast was revised down with predicted inflation to fall quickly to the 2.0% target and remain slightly below that level for the next two years.

The real German economy is starting to feel the pain from the eurozone crisis. Industrial production in June fell by 0.9% month-on-month. This was driven by broad declines in manufacturing, consumer goods and capital goods. These disappointing figures add to fears that the strongest economy in the eurozone may have contracted in the second quarter.

Sterling jumped against both the US dollar and the euro after the comments from Mervyn King dampened expectations of an interest rate cut any time soon. GBP/USD rose to a high of $1.5676 while GBP/EUR gained support to  €1.2690. Meanwhile, EUR/USD came under pressure following the weak German data hitting a low of $1.2325.

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