Bank shares up on inflation announcement

16 June 2009 / by Rebecca Sargent
Shares in the UK's troubled banks saw a gain this morning following the Office for National Statistics' (ONS) latest inflation announcement.

The official rate of inflation (CPI) has fallen from 2.3 per cent in April to 2.2 per cent in May, a drop that was less than expected.

Shares in Lloyds, Barclays and RBS have all seen a gain since the announcement, as investors prepare to take a risk.

Commenting, Joshua Raymond, market strategist at City Index said: "There had been some pause ahead of the CPI figure which saw investors move into the safe haven equities of pharmaceuticals and tobacco. However, as soon as the CPI was announced we saw investors start to return to the riskier financial stocks, with RBS and Lloyds immediately posting gains."

It has been predicted that inflation will fall to one per cent by the end of the year, which could be why a slow in the decline of inflation has sparked a regain to market confidence.

The slow also indicates that the Bank's Quantitative Easing programme may be starting to have a positive impact, Mr Raymond added: "The fact that inflation is slowing more than anticipated does much to herald the potential success of the BoE Quantitative Easing programme in preventing a period of deflation within the UK economy, a factor that still threatens other European economies.

"Today's figures bring into question whether the BoE may continue to add to its current scale of QE," he added.

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