London-listed shares fell, while government bonds fell as UK inflation eased somewhat in November, helping petrol prices fall.
UK inflation fell to a 41-year low last month, down from 11.1 per cent in October to 10.7 per cent, data from the Office for National Statistics showed.
Market reaction was mixed, however, with London’s FTSE 100 down 0.3 percent in early trade. Energy and utilities companies are the best performers, while all other sectors are in negative territory.
Gilts performed well, marching across the board. The two-year yield fell 0.06 percentage points to 3.44 percent, the closest it has been since late October, as the price of the debt instrument rose. The 10-year yield fell 0.02 percentage points to 3.27 percent.
Sterling strengthened, meanwhile, rising 0.15 percent to $1.23 against the dollar. The currency, which has risen steadily against the dollar over the past two months, strengthened its case for a small interest rate hike by the Federal Reserve when it meets later today after data on Tuesday showed US inflation slowed in November.
The Bank of England, which is due to meet on Thursday, is expected to raise rates at a slower clip as the UK economy teeters on the brink of recession.
Francesco Pesol, FX strategist at ING, said he was not surprised by the pound’s “muted” reaction to November’s inflation rate. Investors are jittery ahead of the central bank’s upcoming economic forecasts, while double-digit inflation in the UK means the BoE is likely to raise rates by 0.5 percentage points later this week.