UK 10-Year Gilt Yields Climb After BoE Holds Rates

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.

UK 10-year gilt yields dipped toward 4.75%, hitting their lowest since mid-April, as traders scaled back expectations for Bank of England rate hikes following weaker-than-expected UK inflation data and a continued drop in oil prices. Annual CPI held steady at 2.8% in May, falling short of economists’ forecasts for a rise to 3%. However, the services sector saw a faster increase, climbing to 3.7% from 3.2% in April and surpassing the 3.6% estimate. The core inflation rate rose less than expected, edging up to 2.6% from 2.5%. Oil prices, meanwhile, reached fresh three-month lows amid growing expectations of a US-Iran deal this week. Markets now anticipate just 25 basis points of rate increases for 2026, equivalent to a single hike by December. Before the conflict in Iran, the BoE had been expected to cut rates this year. However, the surge in crude prices, still well above pre-war levels of $65 per barrel, disrupted those plans, exposing the UK’s susceptibility to energy shocks.