UK Gilt Yields Hold Near Multi-Year Highs
The UK 10-year gilt yield remained around 5.4%, near multi-year highs, as investors assessed stronger-than-expected inflation and rising public borrowing ahead of next week’s budget and the Bank of England’s November 5 policy meeting. UK inflation rose to 3.5% in September, above the 3.4% forecast, while core and services inflation also exceeded expectations. Meanwhile, public sector net borrowing reached £24.5 billion, up from a year earlier and above forecasts. Cumulative borrowing for April to September totaled £97.8 billion, exceeding the Office for Budget Responsibility’s March projection by £6 billion. Despite the deterioration in public finances, some major investors expect the upcoming budget to emphasize fiscal discipline, potentially supporting demand for gilts. Elsewhere, resilient economic data, including a fall in unemployment and unexpected GDP growth, have reinforced expectations of tighter monetary policy, with markets pricing in a 25-basis-point rate hike in November.
The UK 10-year gilt yield remained around 5.4%, near multi-year highs, as investors assessed stronger-than-expected inflation and rising public borrowing ahead of next week’s budget and the Bank of England’s November 5 policy meeting. UK inflation rose to 3.5% in September, above the 3.4% forecast, while core and services inflation also exceeded expectations. Meanwhile, public sector net borrowing reached £24.5 billion, up from a year earlier and above forecasts. Cumulative borrowing for April to September totaled £97.8 billion, exceeding the Office for Budget Responsibility’s March projection by £6 billion.
Despite the deterioration in public finances, some major investors expect the upcoming budget to emphasize fiscal discipline, potentially supporting demand for gilts. Elsewhere, resilient economic data, including a fall in unemployment and unexpected GDP growth, have reinforced expectations of tighter monetary policy, with markets pricing in a 25-basis-point rate hike in November.