UK gilts jump on lower-than-expected rise in October CPI; retail sales in focus

The United Kingdom’s gilts jumped during European trading hours Wednesday after the country’s consumer price inflation (CPI) for the month of October, came in lower than market expectations, while investors keep a close eye on Britain’s retail sales for the similar period, scheduled to be released on November 14 by 09:30GMT, for further direction in the labour market.

The yield on the benchmark 10-year gilts, plunged 5 basis points to 0.756 percent, the 30-year yield also slumped nearly 5 basis points to 1.267 percent and the yield on the short-term 2-year traded 3-1/2 1 basis points down at 0.526 percent by 10:55GMT.

October’s consumer price inflation figures were in line with the Bank of England’s expectations so they are unlikely to move the dial on the outlook for interest rates. The drop in CPI inflation from 1.7 percent in September to 1.5 percent in October was a touch weaker than the consensus forecast of 1.6 percent, although in line with our expectation and the Bank of England’s forecast, leaving inflation at its lowest level in almost three years, Capital Economics reported.

The producer price figures showed that input price inflation fell from -3.0 percent to -5.1 percent, its lowest rate since April 2016, while output price inflation nudged down from 1.2 percent to 0.8 percent which should feed into the core rate of inflation in time, the report added.

"Overall, the figures do little to change our view that inflation will spend more time below 2 percent than above it in 2020 and that if Brexit is delayed further, interest rates will be cut, in May 2020," Capital Economics further commented in the report.

Meanwhile, the FTSE 100 slipped -0.64 percent to trade at 7,319.25 by 11:00GMT.