LOWER than expected inflation figures gave the UK government bonds market a boost yesterday after reinforcing hopes that the interest rate cycle is set to peak.
The consumer price index figures for August came in short of expectations and showed the annual rate falling further below the Bank of England’s target of 2 per cent.
Prices rose by 0.3 per cent last month, bringing the annual figure down to 1.3 per cent. Economists had been expecting an annual figure of 1.4 per cent.
Traders took the numbers as reassurance that the Bank of England’s Monetary Policy Committee will not face any additional pressures to raise interest rates this year. Although some economists reckon that the committee will increase rates by a quarter point in November, it is believed that the latest CPI figure, the lowest monthly rise since April, will back the case for no further rises this year.
Dealers also reported positive sentiment from comments made by Stephen Nickell, a member of the Monetary Policy Committee. He said there was a good chance that house prices would fall at some point.
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The December gilt future edged up 13p at £107.06. Treasury 4 per cent 2009 was 8p higher at £96.61, and Treasury 6 per cent 2028 rose 8p to £118.30.