UK inflation below forecasts, sterling falls

Mark Carney

Inflation in the U.K. rose to 2.9 percent in June slightly less than analysts had forecast saving the new Bank of England (BoE) Governor Mark Carney the embarrassment of having to write a letter of explanation to the U.K. government.

Higher fuel prices contributed strongly to the pickup in inflation.

A level of 3.1 percent or more would have meant Carney would have had to write an open letter the U.K. Finance Minister George Osborne giving an explanation for the increase in living costs.

Carney left the Bank of Canada to take up his new post at the BoE on July 1.

In his first ever first ever monetary policy committee (MPC) meeting on July 4,the BoE kept the main interest rate unchanged at a record low 0.5 percent. But, the announcement coincided with the release of a statement from the bank offering forward guidance on monetary policy, a change from previous meetings,which led to sharp drop in sterling and a rally in London stocks.

Sterling fell and gilts rose following the data, which gave hope to investors that monetary policy in the U.K. will remain loose.

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