Concerns about the fragility of the domestic recovery have recently outweighed those regarding the sustainability of the UK’s public finances and the Bank of England’s decision to pause its programme of “quantitative easing.” Gilt yields of all maturities have fallen over the past month – in contrast to rises in government bond yields seen in other economies – while markets have revised down their expectations for future interest rates sharply. We see scope for bonds yields and rate expectations in the UK to fall further in time, particularly given the dovish tone set by the Bank of England this month. Indeed, with inflation projected in its latest Inflation Report to be well below-target at the two year policy horizon, we concur with the Governor that it is too soon to conclude that no more policy support will be required. A tightening of monetary policy remains a very distant prospect.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services