U.K. government bonds declined, with 10-year yields rising for a third day, after a report showed consumer-price inflation accelerated for the first time in 10 months in April.

The pound climbed to a 16-month high against the euro. Consumer prices rose an annual 1.8 percent last month, compared with 1.6 percent in March, the Office for National Statistics said today in London, exceeding the 1.7 percent median estimate of analysts in a Bloomberg News survey. That’s the first increase since June. The pound rose amid speculation the Bank of England will take steps to cool Britain’s housing market.

The 10-year yield rose one basis point, or 0.01 percentage point, to 2.60 percent at 9:36 a.m. London time. The rate climbed six basis points in the previous two days. The 2.25 percent gilt due September 2023 fell 0.115, or 1.15 pounds per 1,000-pound ($1,684) face amount, to 97.11.

The pound appreciated 0.3 percent to 81.28 pence per euro after reaching 81.20 pence, the strongest level since January 2013. Sterling rose 0.2 percent to $1.6840, a fourth day of gains.

The U.K. currency appreciated 9.2 percent in the past 12 months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the strengthening economy boosted bets the Bank of England will hasten plans to increase borrowing costs. The euro added 4.7 percent, while the dollar fell 2.2 percent.

Central bank policy makers said in their quarterly Inflation Report published last week that while the level of spare capacity in the economy had “narrowed slightly” in the past three months, there “remains scope to make greater inroads into slack before raising” borrowing costs. The Bank of England’s benchmark interest rate has been at a record-low 0.5 percent since March 2009.

Gilts returned 3.8 percent this year through yesterday, Bloomberg World Bond Indexes show. German bonds gained 4 percent and Treasuries earned 3.1 percent.

Source: Bloomberg (by David Goodman)