Release Explanation: The Bank of England (BOE) Inflation Report provides detailed economic analysis and an assessment of inflation over the next two years. The report is released quarterly and holds critical insights into the bank's view of inflation and the economic conditions that will affect interest rates in the future. “Currency traders scrutinize this report as it's been known to provide clues about the bank's future monetary policy,” TheLFB-Forex.com Trade Team said.

TheLFB-Forex.com Trade Desk Thoughts: According to the latest Inflation Report, there has been a strong deterioration in the outlook for domestic and global economies. This had a strong affect on domestic demand in the United Kingdom. However, the bank notes that some signs of improvement have been seen lately. 

According to the bank’s own projections, the GDP will fall from an average of 3-5% in first part of 2009, but then resume its growth path in the second half the year. The Bank of England sees the U.K. GDP above the 0% mark only in the last part of 2009, slightly weaker than the February report. TheLFB-Forex.com Trade Team expects the U.K. economy to contract by 2.0-2.5% in 2009.

In the bank’s view, the economic slowdown will reduce the CPI rate well below the 2% target. The outlook for inflation had been affected by the huge declines seen in the energy market and weak spare capacity. However, the strong monetary stimulus coupled with the bank’s program to buy assets may provide a stronger upward inflationary pressure than previously forecast.

The Bank of England had forecast that inflation would fall in the medium term substantially below the 2% target, but then gradually recover to reach the 2% target by 2012. However, the BoE said that the CPI read is likely to remain very volatile in the coming period, something that was also outlined in the interest rate meeting reports.

Forex Technical Reaction: The pound tumbled 100 pips as soon as the Inflation Report was made public. Before the release, the pound was trading near the high of the session, and near the highest value since January