UK gilts in demand as below-forecast inflation hits rate hike bets

LONDON, Feb 15 (Reuters) - Yields on British government bonds fell on Wednesday after inflation declined by more than expected in January, prompting investors to adjust their positions on the likelihood of further Bank of England interest rate hikes. The yields on two- five- and 10-year gilts were down by 11-13 basis points at 1110 GMT, a day after rising sharply following data that showed inflation in the United States was stronger than forecast. "We believe the outlook for monetary policy is finely balanced between one further 0.25% rate hike and a pause in rate actions," Gurpreet Gill, Macro Strategist, Global Fixed Income at Goldman Sachs Asset Management, said. She said there were signs in Tuesday's labour market figures that suggested wage pressures might be past their peak which, along with falling inflation, could strengthen the case for keeping Bank Rate at its current 4.0% level. "Yet a tight labour market and bumpy path to disinflation - as observed in the U.S. - could see the Bank stay in risk management mode a bit longer," Gill said. Investors were ruling out the chance of the BoE raising rates in March by another 0.5 percentage points. Most expected a quarter-of-a-percentage-point increase next month but they put a roughly one-in-four chance on the central bank keeping borrowing costs unchanged for the first time since November 2021.
(Writing by William Schomberg, editing by Andy Bruce)

Reuters Messaging: william.schomberg.reuters.com@reuters.net))