U.K Gilts slump as Bank of England stands pat on Monetary Policy

The United Kingdom Gilts plunged on Thursday as Bank of England maintained its key policy rate at record low of 0.5 pct and BoE has also chosen not to expand its quantitative easing programme beyond its current level of buying £375 billion assets a year. This policy decision was made by a 9-0 vote amid concerns over global growth and uncertainty ahead of a Brexit vote.

The yield on the benchmark 10-year glits, which moves inversely to its price, moved higher 2.46 pct to 1.459 pct and the yield on the 3-year glits rose 7.29 pct to 0.618 pct by 1240 GMT.

Moreover, the Bank of England Minutes published on the BoE website concluded that the uncertainty on supply side of economy might increase post-Brexit and referendum effects make forecasting direction of UK economy harder. Mentioned, the MPC continue to see persistent headwinds weighing on economy and GDP may slow in first half of 2016 due to Brexit uncertainty. Said more likely than not rates will have to rise over forecast horizon and MPC likely to react more cautiously to data around referendum, MPC continues to expect CPI inflation to rise over the next year.

Lastly, all members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles. This guidance is an expectation, not a promise. The actual path Bank Rate will follow over the next few years will depend on the economic circumstances.

We foresee that the BOE will also be wary of increasing interest rates until after a June referendum on Britain’s membership of the European Union, one of several uncertainties they say are weighing on the prospects for the global economy.