U.K. Bond Market’s Inflation Outlook Reaches Seven-Month High

A gauge of investors’ outlook for U.K. consumer-price growth stayed near the highest in seven months as the Bank of England downgraded its growth forecast, and as Governor Mark Carney spoke for the first time since the election-blackout period ended.

The 10-year break-even rate, a measure of inflation expectations derived from the difference between nominal and index-linked bonds, remained at 2.75 percentage points at 11:26 a.m. London time, down three basis points, or 0.03 percentage point, from Tuesday. Earlier it touched 2.80 percentage points, the most since Sept. 30.

 

The BOE said that, based on the benchmark interest rate rising in line with the path implied by market yields, U.K. inflation will return to its 2 percent target within two years. It sees the economy expanding 2.5 percent this year, down from 2.9 percent in February.

Ten-year gilts rose, with yields falling four basis points to 1.95 percent on Wednesday. Policy makers were obliged to stop making statements during Britain’s general-election campaign six weeks ago.

Since then, the global landscape has been dominated by a fixed-income selloff led by European government bonds, as investors reassessed the inflation outlook amid signs economies may be recovering.

While U.K. economic data has been mixed, the country’s bond yields rose with their peers globally as oil prices rallied. The increased yields fueled speculation the slowdown that helped push the inflation rate to zero had run its course.

Average weekly earnings grew an annual 1.9 percent in March, the Office for National Statistics said Wednesday.