The recent falls in UK equity prices, interest rate expectations and gilt yields have not simply been a response to the Japanese earthquake. Indeed, all had started to fall prior to the 11th March as higher oil prices caused investors to question the likely strength of the global economic recovery. What’s more, the fall in gilt yields over the last month has been larger than in the US or Europe, perhaps highlighting the role that the re-intensification of the sovereign debt crisis in the euro-zone has played in boosting demand for gilts. Meanwhile, the recent deterioration in the outlook for global economic growth has probably gone some way to reducing the chance that the Monetary Policy Committee hikes official interest rates during the next couple of months.
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