Apr 3, 2013
Forex Flash: BoE dealing with high inflation – TD Securities
FXstreet.com (Barcelona) - The persistent recession in the Eurozone has been affecting UK manufacturing and exports, and so, MPC members managed to talk down sterling, quite effectively. “This helps to support an expectation for improvement in the second half of the year, but at the same time, continues to raise worries on the persistent bugbear for the UK economy”, wrote TD Securities analysts, seeing high inflation largely as a product of the structural adjustment in the economy, “but there is no question that relative to global inflation dynamics, the UK has been stuck with higher than usual inflation”. “Comparing UK and US inflation pre– and post-crisis in the chart to the right, it is clear the only significant difference since 2007 is that UK inflation has tended to run 1.5 percentage points higher and be more volatile than its pre-2007 dynamics. This has left firms less competitive and consumers with less purchasing power and GBP depreciation will help manufacturers but add yet another hurdle to sustaining a consumer recovery”, said analyst Richard Kelly, expecting monetary stimulus to continue being less effective than usual with the drag from bank capital needs.