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Stimulus to follow lower UK inflation?


Stimulus to follow lower UK inflation?


A surprise on the inflation figures for Britain as it slipped in May to its lowest in two and a half years – down to 2.8 percent from a year earlier. It had been 3.0 percent in April.

That was due to slower price rises for food and fuel.

That makes it more likely the Bank of England will introduce some stimulus measures to help the UK economy which is increasingly feeling the effects of the eurozone debt crisis.

Britain entered its second recession since the 2007-2009 financial crisis around the turn of the year, and signs that the eurozone crisis was deepening prompted UK policymakers last week to announce a plan to flood its financial system with billions of pounds to get a recovery moving.

In addition, Bank of England Governor Mervyn King hinted that more quantitative easing might be on the cards, and the chances that the programme will be restarted next month have been boosted by the inflation figures.

British inflation has been above the BoE’s 2.0 percent target since December 2009 and its slow fall earlier this year had made some central bankers reluctant to inject more cash into the economy despite signs that the recovery had stalled.

The Bank has blamed high inflation for sluggish consumer spending – which drives about 60 percent of Britain’s gross domestic product – and a forecast fall in inflation is one of the reasons why it reckons growth will pick up later this year.

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