Gilts tumble and sterling jumps as BoE expects high inflation

Gilt yields have spiked following the Bank of England's inflation report, which suggested the UK will see higher inflation in the near-term.

The Bank of England's quarterly inflation report says inflation is likely to stay above the 2% target throughout 2011, given the upcoming rise in VAT and continuing increases in import prices. It said there are "substantial risks" to the inflation outlook, including the impact of the coalition government's decision to raise VAT from 17.5% to 20% from 4 January. Gilt yields spiked shortly after the announcement, with the benchmark 10-year gilt yield rising 12bp to 3.15%. it was at 3.05% before the 10:30am release of the report. Meanwhile. sterling is 0.6% up on the dollar and 0.7% a...