What to make of inflation and bond yields in the UK and US

The renewed rise in consumer price inflation in the UK reported today contrasts with the dip in the US announced yesterday. Admittedly, the former has risen from a low level, while the latter has eased back from a high one. But these outcomes have coincided with a recent relative shift in inflation compensation in the two economies, which has fed through to some underperformance of Gilts vis-à-vis Treasuries. We don’t expect inflation in the UK and the US to head in opposite directions indefinitely, though, and foresee a smaller rise in the 10-year yield in the former than the latter between now and the end of 2022.
John Higgins Chief Markets Economist
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