UK Gilt Yields Drop Amid Middle East De-escalation Hopes

The UK’s 10-year gilt yield fell to 4.8%, retreating from Monday’s near 18-year peak, as optimism grew over potential de-escalation in the Middle East. Reports suggest Washington presented Tehran with a 15-point peace proposal after a possible one-month ceasefire, though Iran rejected any involvement, declaring, "No one can trust US diplomacy." Meanwhile, UK inflation data for February revealed stable consumer prices at 3%, aligning with expectations, while core CPI rose slightly to 3.2%, exceeding the forecasted 3.1%. The pre-conflict figures, however, failed to sway markets. With oil prices easing, investors now expect only two interest rate increases by year-end, down from three projected earlier in the week. The shift reflects reduced fears that high energy costs will drive inflation.

The UK’s 10-year gilt yield hovered around 4.85%, slightly below Monday’s near 18-year high of 5.1%, as Middle East tensions and disappointing PMI figures shaped market sentiment. President Trump delayed US strikes on Iran, citing "positive talks", a claim Tehran rejected, though reports suggested indirect negotiations. However, an Israeli official dismissed ceasefire prospects, stating Iran shows no willingness to concede, while Israel’s Defense Minister vowed to "continue striking Iran with full force." Adding to pressure, flash PMI data revealed UK business activity at its weakest since September 2025, with the war stalling growth and driving inflation higher. Investors now price in multiple BoE rate hikes for 2026, abandoning pre-war expectations of two cuts, as policymakers focus on taming inflation amid the UK’s vulnerability to energy shocks.

The UK’s 10-year gilt yield pulled back to 4.85%, after earlier surging to 5.096%, its highest since July 2008, as tensions eased following President Trump’s five-day delay in planned strikes on Iran. The move, framed as a response to "very good and productive" talks with Tehran, temporarily calmed markets ahead of a 48-hour US deadline for Iran to reopen the Strait of Hormuz. However, Iran’s state-run Fars News Agency dismissed the claim, reporting no direct or indirect talks with the US and suggesting Trump’s retreat followed Iran’s threat to target all West Asian power plants. Investors continue to bet on multiple BoE rate hikes in 2026, abandoning pre-war expectations of two cuts, as policymakers prioritize inflation control amid the UK’s exposure to energy disruptions. Attention now shifts to February CPI, retail sales, March PMI, and consumer confidence data, which may further influence the central bank’s stance amid the ongoing crisis.