UK gilts step down on caution ahead of August manufacturing PMI

The UK gilts lost strength Wednesday as investors remained cautious ahead of the release of manufacturing PMI for the month of August, scheduled on September 1 by 08:30GMT.

The yield on the benchmark 10-year gilts, rose nearly 2-1/2 basis points to 1.02 percent, the super-long 30-year bond yields also surged 2-1/2 basis points to 1.69 percent and the yield on the short-term 2-year traded 1-1/2 basis points higher at 0.17 percent by 10:10 GMT.

The BRC Shop Price Index fell 0.3 percent y/y in August, a modest strengthening from the 0.4 percent y/y decline reported in July and matching June’s near-four-year high. Whilst non-food prices fell 1.3 percent y/y, this was the smallest annual decline since April 2013. And food prices rose 1.3 percent y/y in August, a touch firmer than in July.

Despite the pick-up in August, which suggests a further modest increase in headline CPI inflation this month, overall the BRC Shop Price Index suggests that UK inflation remains broadly stable for now. Looking ahead, however, the BRC warned that inflation is likely to start rising again, as retailers’ currency hedges against Sterling weakness expire and the approaching cold seasons lead to increased food imports.

This morning will bring BoE lending figures for July. Mortgage approvals are expected to have remained close to 65k for a fourth consecutive month, while consumer credit growth seems likely to have extended its downward trend, falling below 10 percent for the first time in fifteen months.

Meanwhile, the FTSE 100 traded 0.16 percent higher at 7,349.50 by 10:20 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at 95.06 (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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