The UK gilts traded narrowly mixed Wednesday as investors await the Bank of England monetary policy decision. Also, lower unemployment in July drove-out investors from safe-haven buying.
The yield on the benchmark 10-year gilts, which moves inversely to its price, rose nearly 1 basis point to 0.923 percent, the super-long 40-year bond yield jumped 3 basis points to 1.487 percent and the yield on short-term 2-year bond slid 2 basis points to 0.189 percent by 09:50 GMT.
The Bank of England September monetary policy meeting is scheduled to be held on September 15. The MPC meeting is likely to be far less eventful than last month’s, with the members expected to unanimously agree to hold fire on monetary policy, following the August bumper monetary stimulus package. So we look for the official Bank Rate to hold steady at 0.25 percent and the programme of Gilt purchases, financed via reserves issuance, to be paused at 435 billion pounds.
Moreover, Bank of England Governor Mark Carney while addressing parliament, indicated that post-Brexit recession risks have receded and added that the central bank further room to manoeuvre monetary policy, if needed.
On Tuesday, the British consumer price inflation remained unchanged at 0.6 percent y/y in August, lower than the market economists' forecast of 0.7 percent y/y increase. On a monthly basis, it also stood flat at 0.3 percent m/m, against consensus expectations of 0.4 percent m/m, from 0.3 percent in July.
In addition, the country’s unemployment fell in the three months in July, highlighting that the UK labour market held up well following the country’s June vote to leave the European Union. The labour market statistics show annual average weekly earnings growth decelerated to 2.3 percent y/y in the 3-months to July, from an upwardly revised 2.5 percent in the second quarter of 2016 (previous was 2.4 percent), but is faster than the market consensus prediction of a slowdown to 2.1 percent.
At the same time the ILO measure of headline unemployment rate holds steady, as expected, at 4.9 percent in the 3-months to July, but the rise in the level of claimant count unemployment, by 2.4K in August from a revised fall of 3.6K in July, points to signs of a start to the slackening of labour market conditions as the economy slows.
Meanwhile, the FTSE 100 traded 0.63 percent higher at 6,707.60 by 09:50 GMT.
