UK Gilt Yields Ease
The UK 10-year gilt yield slipped below 5.4% as concerns over social unrest and rising debt across the eurozone prompted investors to shift away from regional assets, boosting demand for UK government bonds and sterling. Meanwhile, investors continued to weigh stronger-than-expected inflation and mounting 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, exceeding forecasts, while core and services inflation also surprised to the upside. Markets now expect at least three quarter-point rate hikes by April 2027, with the first potentially coming in November. Meanwhile, public borrowing reached £24.5 billion, bringing April—September borrowing to £97.8 billion, £6 billion above the OBR’s projection. Despite the worsening fiscal outlook, some major investors expect the upcoming budget to prioritize fiscal discipline, a move that could help sustain demand for gilts.
The UK 10-year gilt yield slipped below 5.4% as concerns over social unrest and rising debt across the eurozone prompted investors to shift away from regional assets, boosting demand for UK government bonds and sterling. Meanwhile, investors continued to weigh stronger-than-expected inflation and mounting 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, exceeding forecasts, while core and services inflation also surprised to the upside. Markets now expect at least three quarter-point rate hikes by April 2027, with the first potentially coming in November.
Meanwhile, public borrowing reached £24.5 billion, bringing April—September borrowing to £97.8 billion, £6 billion above the OBR’s projection. Despite the worsening fiscal outlook, some major investors expect the upcoming budget to prioritize fiscal discipline, a move that could help sustain demand for gilts.