UK Economy Surprises with Strong Q2 GDP Revision

Markets are in an upbeat mood today, with stocks and bonds rallying together despite strong inflation numbers in France. The UK economy has surprised on the upside, with a revision to Q2 GDP from 0.4% to 0.5%. This is due to stronger services growth, rising household spending, and improved business investment.

The UK Gilt market is leading the recovery in sovereign bonds, with the 2-year yield down by 8bps and the 10-year yield down by 7bps. However, yields are still higher than pre-pandemic levels due to strong growth and dovish commentary from central bankers.

Alan Taylor has talked down the need for interest rate hikes, citing low wage growth in the private sector. This could limit the Bank of England's ability to raise rates in the future. Meanwhile, French inflation has jumped to 3.4% in September, its fastest pace in two years, adding pressure on the ECB to raise interest rates.

The oil price is having an ameliorating impact on financial markets after a turbulent month, with Brent crude down by over 4% in the past week. This is benefiting sovereign bonds and causing a drop in US Treasury yields.