UK 10-Year Gilt Yield Rise on Early OBR Report

The UK 10-year gilt yield dipped below 5.35% on Friday as the energy price rally paused ahead of a key US CPI report, which could reinforce expectations of a Federal Reserve rate hike next week. Yet, yields remain close to 19-year peaks, with the 30-year yield near 6%, a level last seen in 1998. Investors processed stronger-than-expected UK GDP data, with July’s month-on-month growth at 0.4%, beating forecasts, while growth over the three months to July matched the previous period at 0.4%. Meanwhile, Brent crude stayed close to a four-month high, and UK natural gas prices remained near a 3.5-year high, amplifying concerns about renewed inflationary pressures. Markets have nearly priced in a Bank of England rate hike in November and anticipate three additional increases by mid-2027, even as Governor Bailey clarified on Tuesday that future decisions will depend on economic and geopolitical conditions, dismissing the notion that a rate rise is merely a matter of time.

The UK 10-year gilt yield jumped above 5.3%, its highest level since August 2007, as expectations for further Bank of England rate hikes intensified amid mounting inflation concerns. Rising energy prices, alongside the ECB’s rate increase and more hawkish inflation outlook, added to pressure on UK yields. Brent crude climbed above $100 a barrel, while UK natural gas prices reached their highest level since late 2022 as escalating Middle East tensions raised concerns over energy supplies. Markets are now fully pricing four BoE rate increases by the end of 2027, despite Governor Andrew Bailey pushing back against the view that another hike is inevitable, stressing that future decisions will depend on evolving economic and geopolitical developments. In the Eurozone, the ECB delivered its expected rate hike, raised its inflation forecasts for the next two years and warned that inflation could remain above its 2% target for an “extended period.”

UK 10 Year Government Bond Yield increased to 5.29%, the highest since August 2007. Over the past 4 weeks, United Kingdom 10Y Bond Yield gained 31.67 basis points, and in the last 12 months, it increased 68.00 basis points.