UK Gilt Yields Fall as PM Starmer Vows to Stay

UK 10-year gilt yields extended their decline to 4.85%, the lowest since April 20, as Prime Minister Keir Starmer pledged to remain in office despite early election results showing significant losses for his Labour Party. Nigel Farage’s Reform UK made gains in English council elections, while Labour lost hundreds of seats, though the decline was less severe than some of the worst-case scenarios. Still, many results are expected to be announced after markets close today and into the weekend. At the same time, optimism over a potential US-Iran peace deal eased fears that persistent inflation could keep interest rates elevated for longer, after President Trump insisted the ceasefire remained "in effect" despite recent clashes. Financial markets still expect the Bank of England to deliver two rate hikes by year-end.

UK 10-year gilt yields fell to 4.95% as investors processed the outcomes of local and devolved government elections and weighed the implications of rising Middle East tensions. Early results indicate Nigel Farage’s Reform UK advanced in English council elections, while Prime Minister Keir Starmer’s Labour Party lost nearly half of the seats it was defending, though the losses were less severe than some of the direst forecasts. The Conservative Party, the main opposition, also suffered, losing over a quarter of its seats, while the Greens nearly doubled their representation and the Liberal Democrats gained ground. Meanwhile, tensions escalated as Washington and Tehran exchanged fire in southern Iran, driving Brent crude prices back to $100 per barrel, even as President Trump maintained that the ceasefire remained "in effect." Financial markets now expect the Bank of England to deliver around 60 bps of monetary tightening, or at least two interest rate hikes, by the end of the year.

UK 10-year gilt yields continued to fall toward 4.9% as investors reduced their expectations for Bank of England rate hikes in 2026, with a potential US-Iran peace deal driving oil prices down and alleviating inflation pressures. Washington sent Iran a one-page memorandum detailing steps to gradually reopen the Strait of Hormuz and lift the US blockade on Iranian ports, with investors awaiting Tehran’s response. Financial markets now anticipate about 50 basis points of tightening, or two rate hikes, by the end of the year, compared to earlier expectations of up to three. Elsewhere, voters across England, Scotland, and Wales are heading to the polls today in elections that will decide control of the Scottish and Welsh parliaments and more than half of England’s councils. The vote serves as a critical test for Prime Minister Keir Starmer, with polls indicating Labour could face setbacks following policy missteps and tax increases.