Pound falls as UK inflation dips below BoE target rate

BY

The pound fell after news that inflation fell below the Bank of England s target rate, dipping under
the crucial 2 dollar level briefly.

The data weighs on the chances of further rises in UK interest rates.

"The unexpected drop takes the wind out of the Bank of England s sails," said David Brown at Bear Stearns.

"Even though the BoE remains in hawkish mode, it will have a hard time justifying a further hike in
rates especially set against the current troubled financial market backdrop," he added.

He believes the view that UK rates have peaked at 5.75 pct where it now stands will keep the
pound under the psychologically important 2 dollar figure.

The Office for National Statistics said the annual CPI inflation rate slumped to 1.9 pct in July from 2.4 pct in June, well below analysts forecasts for a decline to 2.2 pct.

This is the lowest CPI rate since March 2006 and is also the first time since that date that inflation
has been below the 2.0 pct level that the Bank of England is charged with targeting.

At 9.52 am BST the pound was at 2.0008 usd, after dipping to 1.9997 usd briefly. Ahead of the
data the pound was trading at 2.0068 usd.

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