Government bond yields rise as concerns over sticky inflation return

This week has been a busy one for UK economic data. The headline figures clearly follow recent trends with wages rising rapidly, unemployment near historic lows and inflation falling. But below the headlines the picture is more complicated. Exclude food and fuel and inflation hasn’t budged. The cost of services, particularly travel and leisure, is still rising fast and the decline in oil and gas prices from last year’s highs will not last much longer and this will be concerning for the Bank of England. Markets have not been slow to notice and the potential for a 0.5% hike in September caused gilt yields to rise. The US Fed has indicated it also remains concerned about inflation and bonds yields have risen in the US.

Meanwhile, strong wage growth in the UK needs to be set against declining retail sales. The cold and wet July means we shouldn’t read too much into one month’s data, but the last two years have seen a clear drop in sales volumes as the value of sales has risen. Put simply, people are buying less as prices rise. While some companies have protected profits by raising prices this means revenues will have declined at others. 

For the following stories, please click on this link*

  • UK: Gilt yields climb as inflation data underwhelms
  • CHINA: Equities fall due to weak growth and property concerns
  • EQUITIES: Insurers look for the positive in higher gilt yields

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