UK gilts remain nearly flat in lacklustre trade; BoE MPC member Cunliffe’s speech in focus

The UK gilts traded nearly flat Friday as investors remain sidelined in any big deal ahead of the Bank of England MPC member Jon Cunliffe speech.

The yield on the benchmark 10-year gilts, which moves inversely to its price, hovered around 1.19 percent mark, the super-long 40-year bond yield remained steady at 1.70 percent and the yield on short-term 2-year stood flat at 0.18 percent by 10:50 GMT.

The Bank of England (BoE) left monetary policy unchanged at the November meeting that concluded on Thursday, maintaining a more hawkish tone than what was anticipated by market participants. The board shifted from an easing bias to a neutral bias, saying that it "can respond in either direction".

Economic data has remained remarkably resilient to the Brexit uncertainties while the steep GBP depreciation means that CPI inflation will increase sharply next year. It seems that the BoE is quite satisfied that its actions have supported the economy and moved inflation back to higher levels consistent with the 2 percent target.

The BoE now expects higher short-term real GDP growth as economic data so far has been resilient. The bank also expects CPI inflation to be higher than the August projections as the GBP has depreciated further. The BoE expects CPI inflation to peak just below 3 percent in the coming years.

The British government bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of England's target. Crude oil prices extended their downward trend amid record oil stocks build in the United States last week. The International benchmark Brent futures fell 0.40 percent to $47.17 and West Texas Intermediate (WTI) dipped 0.18 percent to $44.61 by 10:50 GMT.

Meanwhile, the FTSE 100 traded 1.20 percent lower at 6,708.30 by 10:50 GMT.