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U.K. Bonds Rally, while Pound Weakens

U.K. government bonds are rallying, and the pound is weakening after a key inflation gauge fell faster than expected in January.

Consumer prices in the U.K. were 10.1% higher in January than a year earlier.

That was below the 10.3% rate expected by economists, and down from the 10.5% rate recorded in December.

Tweet on UK  markets

Chart on UK market data

Bonds rallied as investors bet moderating inflation will ease pressure on the Bank of England to continue raising interest rates.

The rise in prices drove the yield on a 2-year gilt, among the most sensitive to monetary-policy expectations, down about 0.07 percentage point to 3.711%.

The 10-year yield fell nearly 0.08 percentage points to 3.444%.

The pound weakened 0.9% against the dollar, with £1 buying about $1.207.

Derivatives markets show investors reckon are betting that the BOE policy rate will peak at 4.46% later this year, versus Tuesday’s expectation of 4.57%. At its February policy meeting, the BOE raised rates to 4%


Image:Uk stock market exchange