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UK at risk of further downgrades

BoE Governor Mervyn King and other members of the Monetary Policy Committee appeared before the UK Parliament’s Treasury Committee on Tuesday in order to comment on inflation and the economic outlook.

Deputy Governor Charles Bean said that inflation is expected to remain above the 2% target in 2013 and probably at least until 2015. He added however that economic growth should improve towards the end of the year and in 2014, owing to the strengthening of confidence in financial markets and to easier access to credit in the UK.

Mr. Bean also commented on Moody’s downgrade of UK’s credit rating announced last week, saying that the move had been discounted by the markets and that other rating agencies might follow in Moody’s footsteps soon.

MPC member Paul Tucker declared his support for a further expansion of the asset purchase program “depending on the outlook for demand and inflation.” Nevertheless, he suggested that the current 375 billion pound QE program should show better effects shortly as economic outlook woes subside.

External MPC member Ian McCafferty stressed the fact that the ECB’s as well as European officials’ actions so far succeeded in preventing the collapse of the common currency, but that political risks still remain. Another external member David Miles suggested that creating a banking union for the 17 Eurozone Member States might be difficult to achieve.

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