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THOUGHTS ON THE GILT MARKET

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The week has started off quite well for the UK gilt market, with good news on producer input and output prices publ...
The week has started off quite well for the UK gilt market, with good news on producer input and output prices published this morning. Cost pressures in the economy have fallen and producers are holding off in their temptation to increase prices at the factory gate, realising that consumers remain cautious.

It is hoped that lower producer price inflation will quickly feed through to the consumer level, acting as a major positive for gilts. (Economists expect the RPI to have fallen about 0.3% in January, taking headline inflation down to 2.9%).

The Bank of England publishes its latest quarterly assessment of the government's anti-inflationary policy on Wednesday. The gilt market will scrutinise the report for evidence that Bank of England advice was overruled when Kenneth Clarke, the Chancellor, cut interest rates for the second month running in January.

The report will also indicate whether the Bank expects the government to achieve its inflation target of 2.5% by the end of the present parliament. Obviously, any sign that the Bank doubts the chancellor's abilities to achieve his economic aims will be taken quite negatively by gilts.
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