A shockingly bad number out of the UK dropped cable over 100 pips and lead to a rally in bonds. Short sterling was up over 16 ticks for the day with spreads edging slightly lower, Gilts spiked 80 ticks on the number to climb above 118 before falling back.
The number came out -0.5%, 1% lower the the expectations and this will have a big impact on whether rates will rise any time soon.
Last week, it seemed that a rate hike is inevitable as CPI reached an annual level of 3.7%.
Now the central bank’s dilemma is even more complicated – another quarter of contraction and we have a double dip recession. But leaving the interest rate so low means that inflation can rage. Troubled times.
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