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THOUGHTS ON THE GILT MARKET

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In the UK a decision by the Abbey National to trim its variable loan rate by 35 basis points to 7.99% on Friday pro...
In the UK a decision by the Abbey National to trim its variable loan rate by 35 basis points to 7.99% on Friday prompted significant activity in the UK money and debt markets. The gilt market is now more confident than ever that the Chancellor has won the domestic monetary policy debate.

The monetary policy meeting between the Chancellor and the Bank of England Governor, will be the focus of attention for gilt traders this week. Although the minutes of the meeting will not be published for another six weeks there is growing speculation that the Governor will soften, and no longer argue for an interest rate rise.

Gilt traders will also focus on industrial production data published on Wednesday. Output slowed much more sharply than expected in June and some recovery is expected, reflecting increased energy production as oil and gas supplies rebound following a summer maintenance programme.

However, too sharp-a-recovery will be badly received by the market, suggesting the economy is not slowing enough for interest rates to remain on hold for long.
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