13 February 2002, 14:39 Sterling stable after Inflation Report, gilt yields higher as rate fears ease
LONDON (AFX) - There was little response to today's Inflation
Report on the currency markets but yields on UK gilts, particularly at
the short-end, slipped as fears about imminent rate hikes diminished
slightly, dealers said.
In its quarterly analysis into the state of the UK's inflation, the
Bank of England said RPIX, the government's preferred measure of
inflation in that it strips out mortgage costs, will remain near 2 pct
for most of this year.
"The inflation profile is very close to that in the November
Report," the bank said. Fears had been raised following yesterday's
inflation numbers that the profile had fundamentally changed on
continued buoyant consumer spending.
Michael Derks, a strategist at Commonwealth Bank of Australia, is
so confident inflation remains firmly under control that he is
pencilling in another interest rate cut in the summer.
"There's very little to be concerned about," he said.
In particular, he noted the average earnings numbers earlier, which
increased at their lowest rate since spring 1996, despite unemployment
falling for the first time in four months.
Headline average earnings rose a seasonally adjusted 3.3 pct
year-on-year in the three months to December compared with a revised
4.1 pct rise in the three months to November and expectations of a 4.0
pct increase. Yet again, the figure remains below the BoE's comfort
zone of 4.5 pct.
"The evidence is increasingly going on the side of inflation being
well-behaved," said Derks.
Steve Scott, analyst at Dresdner Kleinwort Wasserstein, also said
average earnings were positive for the market, particularly at the
short-end, which had been sold off aggressively yesterday.
The March short sterling future is up around 9 basis points on the
day, recovering much of the ground lost yesterday.
pp/cml NNN
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