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Negative data makes gilts more attractive

Nikhil Kumar
Monday 06 June 2011 00:00 BST
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Interest rates will be in focus this week, with the Bank of England's Monetary Policy Committee set to decide whether or not to keep rates at the record-low of 0.5 per cent.

Most economists expect the policymakers to hold back from raising rates on Thursday, as the economic outlook remains changeable.

But while no movement is likely this week, investors will get data on retail sales, industrial production, manufacturing output and on producer prices, which could throw up some trading ideas. "If the figures are bad, the Bank of England won't be able to increase interest rates anytime soon," ETXCapital's Mick Mills said. "In that case, you should sell sterling, and buy gilts."

Gilts – or UK government bonds – tend to do better in times of economic gloom, as they are seen as safe haven investments. But bad news on the economic front is likely to prove negative for sterling, according to Mr Mills.

Looking further ahead, he recommends keeping a close eye on inflation. The producer prices figures, in particular, are likely to be closely scrutinised, with input prices expected to come under the scanner as the markets attempt to get a better handle on when the Bank might move to raise rates.

For now, consensus forecasts do not anticipate the first rise until well after the summer.

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