UK gilts tad lower after January consumer price inflation surpasses market expectations

The UK gilts traded slightly on the downside Tuesday after the country’s consumer price inflation came in higher than expected in January, adding further pressure for policymakers to hike interest rates again, possibly as soon as May.

The yield on the benchmark 10-year gilts, hovered around 1.60 percent, the super-long 30-year bond yields climbed tad up at 1.98 percent while the yield on the short-term 2-year slumped nearly 2 basis points to 0.70 percent by 10:10GMT.

Consumer prices rose at an annual rate of 3.0 percent in January, according to the Office for National Statistics, unchanged on December and remaining well above the Bank of England’s 2.0 percent target.

Moreover, survey data tracking companies’ costs and the amount of spare capacity in the economy suggest that inflation could remain stubbornly high for some time to come The data indicate that the inflationary impact of the weaker pound is being accompanied by higher global commodity prices, notably for oil, amid the strengthening global upturn.

The data come on the heels of recent warnings from the Bank of England that interest rates may have to be hiked more aggressively than previously thought in order to control inflation, putting a May hike in play.

Meanwhile, the FTSE 100 traded 0.08 percent lower at 7,171.00 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 27.04 (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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