By Maximilian Clarke
Growth in the UK remains stunted as inflation threatens to plummet over the next 6 months, economists predict.
Despite years of above target inflation, a drop to below the Bank of England’s Monetary Policy Committee target of 2% would be highly damaging to the overall economy. The result of these two factors, predicts forex broker and Chief economist at World First, Jeremy Cook, will likely be a further increase to the bank’s asset purchase programme, or quantitative easing.
Reacting to Bank of England Governor Mervyn King’s statement on this week’s inflation drop, Mr Cook said:
“It’s no surprise that the general tone of Governor King’s statement was relatively downcast. We agree with the Bank’s assertion that inflation should fall during 2012, as certain extraordinary factors, such as the VAT increase, will fall out of the equation.
“Of course certain auxiliary factors, such political upheaval in the Middle East, might enter the fray by causing oil prices to climb higher. However, that aside, we expect inflation to come down next year.
“In many ways, this latest report seemed to focus more on the Eurozone than the UK. This is despite the fact that economic uncertainty in the financial markets has led to 17 inflation reports in a row which have seen growth expectations cut.
“As a result we see the Bank of England doing a very simple calculation: poor growth in the short term + falling inflation = more quantitative easing.
“This will lead to the MPC voting for an additional £75-100bn of asset purchases in the February meeting.”
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