UK Gilt Yield Holds Above 5% After Healey’s Surprise Chancellorship

The UK 10-year gilt yield remained just above 5%, unchanged from the prior session, following Prime Minister Andy Burnham’s unexpected appointment of John Healey, the former defense secretary, as chancellor. Healey’s surprise selection, though not a favored candidate, may hint at higher defense spending ahead. On policy, Burnham has so far pledged to cut taxes on energy bills, funded by ending the Digital ID program. Meanwhile, ONS data showed UK government borrowing at £16 billion in June, down a third from last year and below forecasts. In a separate report, wage growth eased to 4.3% in the three months to May, slightly under expectations, while unemployment stayed at 4.9%. Investors are also watching Middle East developments, with renewed hope for US-Iran diplomacy after recent escalations.

The UK 10-year gilt yield rose above 5%, the highest in two months, as elevated oil prices kept inflation concerns alive and reinforced expectations that the Bank of England will maintain higher interest rates for longer. Investors also assessed the political transition after Andy Burnham officially became the UK's prime minister on Monday, accepting King Charles III's invitation to form a government. Burnham, who succeeded Keir Starmer unopposed, is the UK's seventh prime minister in the past decade and the second since Labour returned to power in 2024. He reaffirmed his commitment to the government's fiscal rules while signalling he is considering raising the income tax personal allowance, which has been frozen for years. Markets are now focused on his choice of chancellor, with reports that Shabana Mahmood is the leading candidate.

The UK 10-year gilt yield rose to 5%, near a two-month high, as oil remained elevated after the US and Iran exchanged retaliatory strikes, keeping inflation concerns elevated and reinforcing expectations that the Bank of England will maintain a tighter policy stance for longer. Meanwhile, Andy Burnham officially became the UK’s Prime Minister on Monday after accepting King Charles III’s invitation to form a government. Burnham, who stood unopposed in the Labour leadership contest following Keir Starmer’s resignation, is the UK’s seventh prime minister in the past decade and the second since Labour returned to power in 2024. Markets are now focused on Burnham’s choice of Chancellor. Reports that Shabana Mahmood is the leading candidate have reassured investors, easing concerns that the new government could pursue a more expansionary fiscal agenda.