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London Markets: U.K. bond yields slip even as inflation reaches 30-year high

Short-term bond yields in the U.K. fell on Wednesday, after a steep ascent ahead of data showing that inflation reached a 30-year high in January.

The yield on the 2-year Treasury
TMBMKGB-02Y,
1.455%

fell to 1.46% from 1.54%, though was above the -0.03% it stood at one year ago.

Consumer prices edged up to 5.5% year-over-year from 5.4%, while producer prices fell to 13.6% from 13.8%, the U.K. Office for National Statistics reported.

Kallum Pickering, senior economist at Berenberg, said the inflation report was consistent with the Bank of England’s projections. He noted Bank of England chief economist Huw Pill has previously stated a path to 1.2% by the end of this year would leave inflation somewhat below target.

“While Pill’s guidance clearly signals more rate hikes to come, his commentary implies that a Bank Rate of 1.2% by year end (i.e. about 3 more hikes) would exceed the level of tightening thought necessary by policymakers,” said Pickering. The market meanwhile is pricing in a year-end bank rate of just over 2%.

The pound
GBPUSD,
+0.04%

was virtually flat at $1.3557. The FTSE 100
UKX,
-0.28%

slipped 0.3% in afternoon trade, with banks including Barclays
BARC,
-1.50%

and Lloyds Banking Group
LLOY,
-1.44%

losing ground on the decline in bond yields.

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