US outlook still the key influence on gilt yields

Despite the acceleration of the UK’s economic recovery, gilt yields and interest rate expectations have fallen back over the last month. It would be tempting to conclude that the markets are starting to place more faith in the MPC’s forward guidance and have come around to the Committee’s views on the outlook for unemployment and inflation. However, UK interest rate expectations have fallen in tandem with those in the US. What’s more, the biggest daily fall in gilt yields during the last month coincided with the release of September’s weak US payrolls figures. So once again, events in the US seem to have had the bigger bearing on UK markets than domestic developments.