Why is ‘forward guidance’ failing to anchor long-term Gilts?

The MPC’s commitment to keep interest rates on hold has failed to prevent the yield on 10-year Gilts rising by more than that on US Treasuries. But we think the difference in monetary policy prospects between the UK and US may soon help Gilts outperform Treasuries. Whereas we expect the US Fed to start tapering its asset purchases this month and to begin raising interest rates in 2015, we think the Bank of England could keep rates on hold until 2017 and may even resume quantitative easing in the meantime.