UK gilts strengthen as Aug inflation remains steady, keeps BoE rate cut hopes alive

The UK gilts strengthened Tuesday after recent data showed that the country’s inflation remained unchanged in August, pressurising the Bank of England for further monetary easing.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 3-1/2 basis points to 0.831 percent, the super-long 40-year bond yield dipped 4 basis points to 1.357 percent and the yield on short-term 2-year bond slid 2 basis points to 0.153 percent by 09:00 GMT.

The British consumer price inflation remained unchanged at 0.6 percent y/y in August, lower than the market economists forecast of 0.7 percent y/y increase. On a monthly basis, it also stood flat at 0.3 percent m/m, against consensus expectations of 0.4 percent m/m, from 0.3 percent in July.

Moreover, the UK gilts have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Englands target. Crude oil prices fell more than 2 percent after a number of rigs digging for oil in the US rose again last week. The International benchmark Brent futures fell 2.24 percent to $47.24 and West Texas Intermediate (WTI) dipped 2.48 percent to $45.14 by 09:00 GMT.

The Bank of England September monetary policy meeting is scheduled to be held on September 15. We still think the BoE MPC is inclined to move again, though, but not at next week’s meeting where policy will be left unchanged.   

In addition, Bank of England Governor Mark Carney while addressing parliament, indicated that post-Brexit recession risks have receded and added that the central bank further room to manoeuvre monetary policy, if needed.

Meanwhile, the FTSE 100 traded 0.06 percent lower at 6,697.30 by 09:00 GMT.