Fears that inflationary pressures could call time on a period of interest rate stability acted as a drag on UK government bonds yesterday.
Traders took flight after official figures showed manufacturers’ costs rising at their fastest rate in four and a half years.
The Office for National Statistics figures showed a 3.4 per cent rise in seasonally adjusted producer input prices last month, well ahead of expectations. However, output price inflation — the growth in the price at which goods are sold on — slowed to 2.6 per cent in January.
The discrepancy between the rate of input and output price rises, largely because of surging oil prices, raised concern in the gilts market that the Bank of England Monetary Policy Committee is more likely to raise interest rates in the coming months, amid signs of strength in the economy.
The March gilt future ended the day 41p lower at £111.31. Treasury 4 per cent 2009 gave up 20p at £97.80. Treasury 6 per cent 2028 was 54p lower at £122.96.