(Bloomberg) -- Benchmark U.K. government bonds snapped two days of gains after data released Wednesday showed the nation's dominant services sector grew at the fastest pace in eight months.
The pound held onto gains after IHS Markit's Purchasing Managers Index for the industry climbed to 55.1 last month, up from 54 in May and beating the median estimate for no change. The numbers follow readings in the U.K.'s manufacturing and construction sectors earlier this week, which also signaled that growth was picking up pace, strengthening the case for tighter policy from the Bank of England. Money markets are pricing in a 67 percent chance of a 25-basis point rate increase in August, compared with 61 percent on Tuesday.
“The latest services PMI completes the trio of more positive readings this week, and will reaffirm the Bank of England's view the economy is recovering after a weak first quarter," said Martin van Vliet, a senior interest-rate strategist at ING Groep NV. “As a result, gilts are selling off, led by the front end. But the intraday move in 10-year gilt yields remain fairly modest when looking at the moves so far this year.”
The yield on 10-year gilts rose two basis points to 1.27 percent as of 9:53 a.m. London time, after sliding three basis points earlier in the week. The pound climbed 0.1 percent to $1.3206.
Politics could come back into focus later in the session with Prime Minister Theresa May facing her usual weekly questions session in Parliament amid reports she faces a fresh showdown with her cabinet over plans to keep the U.K. closely tied to European Union rules for trading goods after Brexit. The Conservative leader aims to get her ministers to back her Brexit vision at a meeting Friday at her Chequers retreat.
--With assistance from Charlotte Ryan.
To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net
To contact the editor responsible for this story: Ven Ram at vram1@bloomberg.net
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