Pound Slumps On Inflation Report

The pound has put in a bad 24 hours at the office, falling from a high of $1.4893 yesterday to a low $1.4338 today.

Sterling had a nervy start to the day ahead of UK unemployment data, which was expected to show 88,000 job losses in January, pushing unemployment up from 1.92 million last month, above 2 million.

As it was the numbers weren't quite as bad as expected, coming in at 73,800 - keeping unemployment below the magical 2 million mark, albeit ever so slightly.

The pound rallied around a cent on the news.

However, the BoE quarterly inflation report then came out, saying that the BoE sees CPI at just 0.5% in two years time, based on current market rate expectations. This would appear to give some further downwards room for manoeuvre on UK interest rates.

“Given its (the BoE's) remit to keep inflation on track to meet the 2 percent target in the medium term, the projections published by the committee today imply that further easing in monetary policy may well be required,” said King.

Many feel that a zero interest rate policy is warranted and if prices continue to plunge the risk of deflation may drive the MPC to oblige.

Sterling subsequently fell back below $1.44 and to around 1.11 against the euro.