London-listed shares fell while government bonds rose on Wednesday as UK inflation eased marginally in November, helped by falling petrol prices.
UK inflation fell from a 41-year high last month, falling to 10.7 per cent from 11.1 per cent in October, data from the Office for National Statistics showed.
However, market reaction was mixed, with London’s FTSE 100 down 0.3 percent in early trade. Energy and utilities were among the best performers, with all other sectors in negative territory.
Gilts outperformed, rallying across the board. The two-year yield fell 0.06 percentage point to 3.44 percent, close to where it has hovered since late October, when the price of the debt instrument rose. The 1[ads1]0-year interest rate fell 0.02 percentage points to 3.27 percent.
Sterling, meanwhile, strengthened, rising 0.15 percent against the dollar to $1.23. The currency, which has climbed steadily against the dollar over the past two months, gained further strength after data on Tuesday showed US inflation had eased in November, bolstering the Federal Reserve’s case for a smaller rate hike when it meets later today.
The Bank of England, due to meet on Thursday, is also expected to raise interest rates at a slower clip, as the UK economy teeters on the edge of a recession.
Francesco Pesole, currency strategist at ING, said he was not surprised by the pound’s “muted” response to November’s inflation rate. Investors are jittery ahead of the Fed’s upcoming economic projections, while double-digit inflation in the UK means the BoE is likely to raise interest rates by 0.5 percentage points later this week.