Britain's bond yields rocket higher after double-digit inflation print
- Around two hours after the publication of the red-hot consumer price index reading, the yield on the 2-year Gilt was up more than 29 basis points to reach 2.441%, before moderating slightly.
- The annual rise in consumer prices outpaced consensus expectations of 9.8% as food and energy prices continued to soar, exacerbating the country's cost of living crisis.
LONDON — British 2-year Gilt yields soared to their highest point since November 2008 on Wednesday after new data showed U.K. inflation hit 10.1% in July.
Around two hours after the publication of the red-hot consumer price index reading, the yield on the 2-year Gilt was up more than 29 basis points to reach 2.441%, before moderating slightly.
The yield on the 10-year Gilt rose by more than 11 basis points and the 5-year yield climbed 16 basis points.
The annual rise in consumer prices outpaced consensus expectations of 9.8% as food and energy prices continued to soar, exacerbating the country's cost of living crisis.
The figures from the Office for National Statistics also showed core inflation, which excludes energy, food, alcohol and tobacco, came in at 6.2%, ahead of consensus projections of 5.9%.
With real wages suffering a historic squeeze and the Bank of England projecting inflation will top out at 13.3% in the fourth quarter, along with huge increases expected to the U.K.'s energy price cap, analysts predict the situation to get worse.
Conservative Party leadership candidates Liz Truss and Rishi Sunak, one of whom will succeed Boris Johnson as prime minister on Sept. 5 after a poll of party members, are under increasing pressure to offer radical solutions to the country's historic cost-of-living crisis.
"To avoid a large hit to consumers, significant further fiscal stimulus would be required beyond what is currently being proposed by either candidate to be the next prime minister," said Mike Bell, global market strategist at JPMorgan Asset Management.
"However, if enough stimulus is provided to largely offset the hit to consumers, then the Bank of England may well feel the need to continue raising interest rates. This could then pose a risk to consumption and the housing market via higher mortgage costs."
Unless wage growth and underlying inflationary pressures moderate on their own, without a rise in unemployment, Bell said U.K. policymakers are "stuck between a rock and a hard place."