Tuesday January 17, 2006 - 10:51:09 GMT
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INVESTICA Ltd - www.investica.co.uk
UK inflation under control
Sterling weakened to below the 1.7650 level against the dollar during Monday and again in Asian trading on Tuesday, but the UK currency managed to recover back towards 1.77 in early Europe. Sterling also strengthened slightly against the Euro to 0.6855, but the benign inflation data pushed Sterling down again.
Consumer prices rose 0.3% in December with the annual inflation rate dipping to 2.0% from 2.1% the previous month. Bank of England Governor King stated that he expected steady growth with low inflation in the short term and the overall impression is that the bank will look to keep interest rates on hold in the short term unless there are major dislocations to the economic outlook.
The retail sales data will be important on Friday and a weak figure would increase pressure on the bank to sanction a cut in interest rates. Expectations of a medium-term drop in rates will still tend to give a weakening bias to the UK currency with persistent speculation over a rate cut in February.
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