In a document released on Wednesday Fitch rating agency affirmed Germany's rating at the top AAA level, with a stable outlook.
The agency warns however that the country's exposure to the “systemic component of the crisis” as well as its potential further contributions to bailouts for distressed EU countries might put downward pressure on the rating.
EU waiting for Spain to request bailout
(FXstreet.com / EFE) - The European Commission has still not received Spain's request to release the 30 billion euro aid, which is the first installment of the over 100 billion euro rescue destined for the recapitalization of the country's ailing banks.
According to the memorandum of understanding, signed between Spain and the EU in July, the Bank of Spain is the institution responsible for presenting the official request before the European Commission. According to Reuters' sources the central bank has already begun the proceedings.
The decision whether the money can be disbursed belongs to the European Commission and the ECB, although it does not need the approval of European finance ministers.
BoE: UK inflation and growth perspectives remain 'unusually uncertain'
The quarterly Inflation Report released by the Bank of England on Wednesday suggests that inflation will continue falling throughout the rest of 2012 an will most probably remain below the 2% target from mid-2013 to 2015. The near-term outlook has been lowered from last quarter's, “reflecting falls in energy prices and some broader-based weakness in price pressures.”
As for the GDP, the report states that “the recent pattern of quarterly growth has been affected by a number of erratic factors and this is likely to continue through the remainder of this year” which means that “underlying growth will probably remain soft in the near term.” Nevertheless, “gentle strengthening in the growth of households’ real incomes, together with the combined stimulus from the asset purchase programme and the FLS, should prompt a gradual pickup in economic activity.”
The Inflation Reports also suggests that further QE might be introduced in the nearest future in order to maintain the inflation rate at a desired level. It indicates that the developments in the EU crisis heavily influence recovery in the UK and any aggravation of the situation poses a serious threat.
According to RBS analysts: “BoE policy signal seems to be that they are content for markets to maintain current policy expectations. The Bank's August forecasts do not obviously seek to boost expectations of further – and certainly not earlier – policy easing, but the CPI and GDP projections, together with the rhetoric maintain the easing bias.”
Just after the release of the BoE's quarterly Inflation Report, BoE Governor Mervyn King presented his comments at a press conference. He pointed out that there are many obstacles on UK's road to recovery, one of the most important being the aggravation of the European debt crisis, which also hampers accurate forecasting.
The Governor pointed out however, that the initial impact of the newly introduced Funding for Lending Scheme, which facilitates bank lending to households and businesses, has been satisfactory and expressed his hope that it will help to heal the ailing UK economy. Nevertheless, more time is necessary to fully evaluate the effects of the FLS as well as the recent expansion of stimulus.
As far as a further rate cut is concerned, governor King deemed such a move as "counterproductive" and potentially harmful for certain financial institutions.
Stephen Hughes, Director of Currencies.co.uk comments: “While Sir Mervyn King may have waved off the suggestion of an interest rate cut, we’ll be watching this very closely as the mere mention of a cut could result in Sterling exchange rates falling against most of the major currencies. It is only the severity of the Eurozone crisis that has pushed Sterling Euro exchange rates to a 4 year high so if we start to see some strength back to the Eurozone, then we could see GBP/EUR exchange rates plummet.We would suggest to those looking to exchange sterling to do so as soon as possible. It may also be worth considering a forward contract to fix the exchange rate at its current level.”
