UK gilts rally on dovish remarks from BoE’s Weale; high GDP impacts little

The UK gilts continued to rally on Wednesday as investors poured into safe-haven assets after Bank of England MPC member Martin Weale signalled that he is in favour of providing fresh stimulus for the economy.

On the contrary, upbeat second-quarter gross domestic product (GDP) growth has very limited impact on the gilt prices.

The yield on the benchmark 10-year gilts fell 3 basis points to 0.792 percent, the yield on super-long 30-year bond dipped nearly 3 basis points to 1.680 percent and the yield on short-term 2-year bonds slid nearly 2 basis points to 0.153 percent by 10:00 GMT.

The Bank of England’s Weale said that policy action in August unlikely to boost the economy before next year and monetary policy would not boost economy straight away so any action would not save the UK from recession if growth is beginning to shrink.

He further added that weaker PMI detail will be very material for next week's rate decision as it was a lot worse than expected.

Martin Weale has indicated that he has changed his mind and now favors an immediate stimulus for the economy after reading weak PMI numbers, FT reports, citing an interview.

Moreover, the Markit PMI survey showed that the economy was shrinking at the fastest rate since 2009. The preliminary UK July manufacturing PMI tumbled to 49.1, against market consensus of 50.0, as compared to 52.1 in June. Similarly, the service PMI reading also dipped to 47.4, against market expectations of 49.2, from 52.3 in June.

In addition, investors did not react to the UK preliminary second-quarter output-based GDP growth, which increased 0.6 percent q/q, higher than the market expectations of 0.4 percent q/q, as compared to 0.4 percent in the previous quarter. On an annual basis, it rose 2.2 percent y/y, a bit higher than the analyst consensus of 2.0 percent y/y, from prior 2.0 percent.

Lastly, Investors will remain keen to focus on the Federal Reserve monetary policy decision and Fed Chair Janet Yellen’s post-statement press conference, in an attempt to estimate the Fed's most likely step.

Meanwhile, the FTSE 100 trading up 0.27 percent at 6,742 by 10:00 GMT.