By Nigel Hodges of Currency Solutions

Well, if you thought England-Australia was bad! Stock markets have taken an absolute hammering this week in the conspicuous absence of any positive economic data.

After the failure of the G20 to deliver a blueprint for economic recovery, markets opened the week with a cautious tone. Negative data continued throughout the week and Wall Street took a fresh battering overnight as oil dropped to below $50 a barrel and widespread job losses were announced.

To quickly recap for the UK, figures this week inflation has dropped to 4.5% in October, down from 5.2% in September. This is largely due to the drop in energy prices recently as oil has fallen to below $50 a barrel, crazy when you consider it was $147 a barrel as recently as July.

Although still running well above the official target of 2%, declining inflation allows the MPC more scope to stimulate the flagging economy. On the flipside, of course, we may see deflation and price stability become an issue in 2009.