The headline reading for U.K. inflation is expected to increase 3.6% in January after expanding 4.2% in the previous month, and easing price pressures could drag on the British Pound as the development spurs speculation for additional monetary support.
Indeed, the Bank of England widened its asset purchase facility to GBP 325B amid the risk of undershooting the 2% target for inflation, and the central bank may see scope to expand its balance sheet further as the slowing recovery in Britain dampens the outlook for price growth. However, the recent comments from the BoE suggests that the Monetary Policy Committee is looking to conclude its easing cycle as central bank officials expect growth to pick up later this year, and we may see Governor Mervyn King soften his dovish tone for monetary policy as the region is expected to skirt a double-dip recession.
