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Accumulator: gilts under pressure as inflation bites

Our exclusive, weekly stock market data table shows how the main asset classes and world markets have performed for UK investors.

Accumulator: gilts under pressure as inflation bites

Gilt prices came under pressure this week, as higher-than-expected inflation figures raised the prospect of an interest rate rise coming sooner rather than later.

Minutes from the Bank of England’s latest Monetary Policy Committee (MPC) meeting showed external members Ian McCafferty and Michael Saunders joined Kirstin Forbes in calling for a reversal of last August’s cut in the base rate. The three members believe an interest rate rise could help to curb the impact of higher inflation.

News of the split – which follows a rise in US interest rates on Wednesday – surprised investors in the UK government bond (gilt) market, which was previously pricing in the first rate rise for February 2020.

Gilt prices fell as investors digested the possibility that interest rates could rise earlier than expected. There is an inverse relationship between gilt prices and yields, which means that if prices fall it causes yields to rise. On Thursday, 10-year gilt yields jumped 0.104% to 1.034%.

The Accumulator, our exclusive stock market data table (see link below), shows that gilt prices fell 0.4% over the week to 15 June.

Inflation is certainly on the radar of investors at the moment. Retail sales fell by 1.2% in May, suggesting that consumers are feeling the squeeze. This figure was much higher than expected and followed the Office for National Statistics’ announcement on Tuesday that consumer prices index (CPI) had spiked to a four-year high of 2.9%.

The picture worsened after new figures revealed wage growth was failing to keep up with the cost of living.

Sterling also weakened against major currencies during the week to 15 June. The pound was down 1.5% against sterling and 0.8% versus the euro. Expectations for the course of Brexit, the inflation figures and the MPC meeting all weighed on the currency during the week.

Our weekly Accumulator table shows the returns for UK investors of all the world markets and asset classes.

You can access the Accumulator here.

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