UK gilts climb after September services PMI shrinks into contraction phase

The United Kingdom’s gilts climbed during European trading hours Thursday after the country’s services PMI for the month of September, fell into contractionary phase, also failing to meet market expectations.

The yield on the benchmark 10-year gilts, plunged nearly 4-1/2 basis points to 0.456 percent, the 30-year yield slumped nearly 4 basis points to 0.951 percent and the yield on the short-term 2-year also lost 4 basis points to 0.345 percent by 10:00GMT.

The seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index fell to 49.5 in September, from 50.6 in August, signalling a decline in service sector output. Though indicative of only a marginal rate of reduction, it was only the fifth time in over a decade that the headline index has fallen below the no-change threshold of 50.0.

With both new and outstanding business declining at the end of the third quarter, companies were the least optimistic of future growth of activity since July 2016 following the EU referendum.

"The increasingly dire readings push the surveys further into territory that would normally be associated with policy stimulus from the Bank of England, suggesting a greater likelihood that the next move in interest rates will be a cut," said Chris Williamson, Chief Business Economist at HIS Markit.

Meanwhile, the FTSE 100 slipped -0.42 percent to 7,092.79 by 10:10GMT.