BoE Sees Inflation Rate at 0.5%, GBP/USD Plunges

The BoE sees CPI at just 0.5% in two years time, based on current market rate expectations, keeping the door open to further rate cuts. The outlook, based on a repo rate trough of 0.7% in Q3 this year, would leave inflation significantly below target in two years time. In its Inflation Report, the BoE noted that the main downside risk to inflation was that the current recession last longer then currently expected, while upside risk was seen from the sterling depreciation. The central bank expects growth to contract through most of this year but see the start of a recovery at the end of this year. No more details on the MPC's view on quantitative easing was provided, with the statement just noting that the committee has been provided with the powers to increase money supply to underpin demand, but with the bank noting that there were still uncertainties about the strength of such operations. Hence, today's report underpins the outlook for further monetary easing but does not give the market any new insight to the possibility of quantitative easing.

Meanwhile, GBP dipped after BoE Inflation Report, with Cable traded back below 1.4450 versus its European peak of 1.4552, while EUR-GBP pushed back above 0.8950 area after it found a base at 0.8900.

DailyFX

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