UK gilts lose ground after retail sales cheer market expectations; BoE policy decision in focus

The UK gilts lost ground Thursday after the country’s retail sales for the month of November cheered market expectations. Also, investors are curiously awaiting the Bank of England’s (BoE) monetary policy decision, scheduled later today for further direction in the debt market.

The yield on the benchmark 10-year gilts, rose nearly 1 basis point to 1.22 percent, the super-long 30-year bond yields hovered around 1.78 percent and the yield on the short-term 2-year traded nearly 1-1/2 basis points higher at 0.49 percent by 09:45GMT.

Despite rising inflation and slow wage growth, retail sales volumes were 1.6 percent higher than a year earlier, up from a flat performance in October and beating all forecasts in a Reuters poll that had pointed to the annual growth of just 0.3 percent as shoppers took advantage of Black Friday bargains.

The final MPC meeting this year concludes today. And having last month raised Bank Rate to 0.5 percent, there seems no chance of a change in policy this time around. Despite Tuesday’s increase in the annual CPI rate to 3.1 percent y/y in November, policymakers are likely to acknowledge that, in the round, recent inflation figures have not been quite as strong as they had previously expected.

In addition, there is significant uncertainty about the strength of GDP growth in the current quarter, with business surveys and consumer spending indicators sending mixed signals. And while the first-phase Brexit deal, which is expected to be approved by EU leaders at their summit which starts later today, has reduced the tail risks of a disorderly Brexit, uncertainty related to the UK’s future relationship with the EU persists.

Meanwhile, the FTSE 100 traded 0.17 percent lower at 7,483.75 by 09:45 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at 86.17 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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