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Gilt yields soar to two year high
by James Phillipps on Aug 14, 2013 at 07:49
The yield on 10 year UK gilts reached the highest level in nearly two years amid growing market concerns that interest rates will be raised earlier than expected.
The 10 year benchmark gilt yield hit a peak of 2.6% in trading yesterday –the highest since October 2011- before falling back slightly to close at 2.5%.
Earlier in the day, the Office for National Statistics announced that UK consumer prices inflation (CPI) fell from 2.9% to 2.8% in July.
Capital Economics said that it expects the spike upward in inflation earlier in the year to begin easing until the end of the year.
‘Although there are growing signs of economic recovery, we think the degree of slack in the economy will help push down CPI inflation close to the MPC’s 2% target by the end of the year,’ said Martin Beck, UK economist at Capital Economics.
The yield on 10 year gilts has risen by 27 basis points over one month since Bank of England governor Mark Carney (pictured) took the hotseat and by 99bps over 12 months. And the rise comes despite Carney saying in his forward guidance that the Bank will keep interest rates on hold until unemployment falls below 7%, which the Bank does not expect before 2016.
The market now appears to be moving well ahead of this and all eyes will be firmly focused on Carney if economic data continues to improve.
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