The unexpected drop in British inflation in May could ease the squeeze on consumers' purchasing power and make it easier for the Bank of England to engage in additional Quantitative Easing, IHS Global Insight chief UK and European economist Howard Archer said Tuesday.
According to Archer, given the economy's recent weakened performance and poor outlook the BoE is likely to engage in further Quantitative Easing as early as next moth. The bank, however, is unlikely to take interest rates below 0.5 percent as the MPC is doubtful that even lower interest rates would have a net beneficial impact, the economist noted.
IHS Global Insight expects UK inflation to further weaken to 2.2 percent at the end of 2012 and to drop below 2 percent in 2013, although it may hover around 2.8 percent in the near term due to the lingering impact of the sharp rise in oil prices at the start of the year. Underlying price pressures are expected to be held down by excess capacity, extended muted economic activity, and ongoing wage moderation amid substantial labor market slack, it said.
According to the firm, Brent, prices of which would have a key role to play in how far and how quickly consumer price inflation eases over the coming months, is expected to largely trade around $95-100/barrel through the second half of 2012.
Data from the statistical office today showed UK's annual inflation slowed to a 30-month low of 2.8 percent in May, helped mainly by lower oil and food prices. Core inflation, however, edged up to 2.2 percent from April's 29-month low of 2.1 percent. In the second quarter, inflation slowed to 2.9 percent, below the BoE's forecast of 3.2 percent.
by RTT Staff Writer
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