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The United Kingdom Gilts tumbled on Tuesday after the strong reading of March consumer and producer inflation figures, highest since December 2014. The yield on the benchmark 10-year Treasury note which moves inversely to its price, moved higher 3.95 pct to 1.448 pct and the yield on the 3-year Treasury bond rose 9.17 pct to 0.595 pct by 0948 GMT.
The March consumer inflation rose 0.5 pct y/y, consensus was for 0.4 pct, as compared to 0.3 pct in February. Similarly, core CPI jumped 1.5 pct y/y (expectation was for 1.3 pct y/y), from 1.2 pct in February. The March producer price index rose 2 pct, lower than the consensus of 2.3 pct, as compared to 0.1 pct in February.
The acceleration is unlikely to alarm central-bank officials, who have kept their benchmark interest rate pegged at a record low of 0.5% since March 2009.
Officials led by Governor Mark Carney have signalled that they want to see faster wage growth and other evidence that inflation is heading back to 2% before they consider nudging up borrowing costs.
We foresee that the BOE will also be wary of increasing interest rates until after a June referendum on Britain’s membership of the European Union, one of several uncertainties they say are weighing on the prospects for the global economy.
