HBOS Share Price falls further as UK Inflation rockets

The British CPI was reported up to 4.7% in Aug from 4.4% in July, led by energy costs, the highest in 16 years. The BoE is required to write a letter to the Treasury when inflation exceeds its 2% target by more than 1% (you can read the letter at the FT.com website). This is the second letter Mr. King has had to write (they are due quarterly for as long as the discrepancy lasts). This time, of course, the BoE blames food, gas and crude oil prices. According to the FT, King says the BoE now thinks inflation will peak and soon at about 5% but is sticking to the scenario of sharply falling inflation in 2009.

“The governor again argued that the Committee was trying to strike a balance between the concern that people might get used to high inflation, so it would become embedded in the economy, and the worry that the economic picture was so bad that inflation would drop well below target in the medium term.” A period of “muted” growth is necessary to damp price pressure and kill of inflation expectations having their usual self-fulfilling effect. Market News reports that the market saw the letter (and CoE Darling’s comments about it) as “dovish.”

Overall the Pounds to Euros exchange rate has fallen a little on the news and is trading 1.2560 in afternoon currency trading. The Outlook for the pounds to Euros exchange rate is that it may re-test the lows as the UK continues to provide more bad news and especially if HBOS share price continues to come under fire due to the credit crisis.

Bye For Now

Barbara Rockefeller