UK 10-Year Gilt Yield Falls from 4-Month High

UK 10-year gilt yields climbed to 4.8%, extending their rebound from recent lows as markets weighed political uncertainty and global risk sentiment. Greater Manchester Mayor Andy Burnham’s victory in the Makerfield by-election has bolstered his profile as a potential challenger to Prime Minister Keir Starmer, with markets increasingly focused on the possible fiscal implications of a future leadership bid. However, with limited policy detail so far, the impact on public finances and borrowing remains difficult to assess. Meanwhile, crude prices sought to recover from recent steep losses after planned US-Iran peace talks in Switzerland were abruptly canceled, reigniting concerns over the durability of the tentative agreement to end the Middle East conflict. On monetary policy, the Bank of England maintained a cautious stance amid uncertainty over energy-driven inflation risks, while the US Fed signaled that some policymakers still see scope for further tightening later this year.

UK 10-year gilt yields rose to 4.78%, recovering from two-month lows, as investors assessed the latest monetary policy decisions from the Bank of England and the US Federal Reserve, as well as the potential impact of the Makerfield by-election on Labour’s economic agenda. UK officials voted 7-2 to keep interest rates at 3.75%, highlighting uncertainty over the economic fallout from the Middle East energy shock. The BoE reaffirmed its commitment to addressing inflation, with Governor Andrew Bailey noting that pressures from the Iran conflict remain despite the ceasefire and prospective deal. The Monetary Policy Committee also projected inflation to rise later this year as broader cost increases spread through the economy, though it lowered its peak inflation forecast to 3.25% for Q4 2026, down from 3.6%. This follows the Fed’s decision to maintain rates, though nine of its 19 policymakers now anticipate at least one hike this year.

UK 10-year gilt yields edged up to 4.76%, staying near two-month lows, as investors analyzed new UK labor figures ahead of the Bank of England’s policy announcement and the Makerfield by-election, which may shape Labour’s future economic direction. UK unemployment fell to 4.9% in the three months to April, defying expectations of 5.0%, while wage growth reached 4.4%, above the 4.0% forecast. Private sector pay matched projections at 2.9%, down from 3.0%, potentially easing BoE concerns over wage-fueled inflation. The Bank of England is expected to keep rates unchanged today, but policymaker dissent could hint at a more hawkish stance. This comes after the Fed held rates steady, though nine of its 19 members now foresee at least one increase this year.