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BoE sees inflation above 2% until 2016

The quarterly Inflation Report released by the Bank of England on Wednesday suggests that inflation will stay above the 2% target for the next two years and it should fall below this level thereafter. The previous inflation forecast pointed to the third quarter of 2014.

As for the GDP, it is “likely to remain weak in the near term” as the European debt crisis as well as lower credit supply pose downside risks to growth. Nevertheless, "further out, a continued easing in domestic credit conditions — supported by the Bank’s asset purchase programme and the FLS — together with a stronger global backdrop, underpin a slow recovery in both demand and effective supply."

Just after the release of the report, BoE Governor Mervyn King spoke to reporters at a press conference. He assured that the BoE is prepared to do more to boost the economy, although he stressed that monetary stimulus alone cannot solve all the problems. He said that the positive effects of the Funding for Lending Scheme and the asset purchase programs are starting to be visible but nevertheless “the risks are weighted to the downside.”

According to the ING analyts James Knightley: "The BoE is firmly in wait and see mode, but there does appear to be a slight easing bias in place. Consequently, any disappointment on the activity front is likely to prompt another round of stimulus even though the BoE acknowledges QE’s limitations. Indeed, if fiscal worries in the US and political concerns in the Eurozone dent global sentiment and growth prospects they will likely have to follow up with their conditional promise to 'do more'."

Forex: GBP/USD plunges over 100 pips on BoE

The GBP/USD has collapsed during European trading Wednesday, as the BoE has caused the pair to fold like origami, dropping over 100 pips in recent minutes off of the 1.5655 mark. At the time of writing the pair is in escape velocity, trading at 1.5548/51.
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