UK Consumer Prices Index - Economic Data Preview

The [B]UK Consumer Price Index[/B] report is expected to show that the annual pace of inflation to fell to 2.0% in the year to May, the lowest since September 2007. Although the reading is still within the Bank of England’s target parameters, continued economic weakness is likely to push price growth lower. Indeed, a survey of economists conducted by Bloomberg is calling for GDP to continue to shrink at least through the first quarter of next year, sending CPI below 1% by the third quarter of this year. The Bank of England has said that such extremes will be temporary, with prices recovering to 1.4% by the end of next March. However, these forecasts are based the assumption that the economy will grow 0.2% next year, a claim that is contested by the International Monetary Fund which expects the UK will shrink -0.4% in 2010. If the IMF outlook proves correct, prices could well drift into negative territory, threatening to substantially extend the current downturn as expectations of deflation encourage consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.