Investors reassess QE outlook

UK government bond yields have recently climbed to their highest levels since May. Fading expectations of a cut in official interest rates and further asset purchases from the Monetary Policy Committee (MPC) appear to have been the key driver of the pick-up in gilt yields. The MPC appears to have taken some comfort from the 1% quarterly rise in GDP in the third quarter. And some members of the Committee have indicated that they believe QE has become a less effective policy tool. Nonetheless, we continue to expect more asset purchases to be announced later this year in response to a recovery still struggling to get off the ground.