The BoE cut rates by a quarter point as they see credit markets tightening and overseas growth deteriorating. However, they still feel that they need to balance two risks slowing growth and rising inflation. The MPC expects inflation to rise further this year threatening to hold above its 2% target, with rising commodity prices and oil reaching a record $112.21 a barrel yesterday. Conversely, the downside risks of the financial crisis could lead to a slowdown that would drag inflation with it. Tightening credit conditions remains a concern for the central bank, as the fragile U.K. housing sector saw prices decline in March another 2.5% according to HBOS, one of the country’s largest lenders. Banks have been reluctant to pass on to borrowers the recent liquidity that has been infused into the economy, creating an inbalance between supply and demand. Although, they feel that the recent deprciation in the Sterling will support exports, the prospects for future growth have deteriorated. This was supported by the IMF's estimated that there was a 25% chance of a global downturn when it lowered its forecast for global growth to 3.7%, weighed by the credit market turmoil.-John Rivera, Currency Analyst

source: www.dailyfx.com

Labels: Fundamentals, Markets