UK gilts rise ahead of August consumer price inflation, BoE’s policy rate meeting

The United Kingdom’s gilts rose during European trading hours Tuesday, ahead of the country’s consumer price inflation (CPI) data for the month of August, scheduled to be released on September 18 by 08:30GMT and the Bank of England’s (BoE) monetary policy meeting, due to be held on the following day for further direction in the debt market.

The yield on the benchmark 10-year gilts, slipped nearly 1 basis point to 0.685 percent, the 30-year yield suffered 2-1/2 basis points to 1.110 percent and the yield on the short-term 2-year remained flat at 0.516 percent by 10:40GMT.

In August last year, the Bank Rate was lifted from 0.50 percent to 0.75 percent and the BoE has since guided that future hikes “are likely to be at a gradual pace and to a limited extent”. In addition, the BoE has said that the policy response to the Brexit outcome could “be in either direction”, DNB Markets reported.

With a still unclarified Brexit outlook, we find it reasonable that the guidance remains unchanged at this meeting. At this stage the market is pricing in practically no movement in the Bank Rate until January next year, when there is priced in 72 percent probability of a 25bp cut. Our forecast of a 50bp rate cut in November was based on a no-deal Brexit taking place on October 31, the report added.

"This now seems unlikely as a majority in the Parliament voted in favour of a law which prevents such an outcome. In case of a soft Brexit on October 31 or a delay until January, the Bank Rate will likely be kept unchanged until next year," DNB Markets further commented in the reported.

"Sterling risks remain around Brexit, with the Supreme Court starting hearings today on Brexit-related cases, including considering whether the prorogation of Parliament was unlawful," Lloyds Bank commented.

Meanwhile, the FTSE 100 traded tad 0.16 percent up at 7,332.35 by 10:45GMT.