UK Gilt Yield Holds Near Two-Month High After BoE Decision

The UK 10-year gilt yield held above 5.0%, remaining close to last week's two-month high after the Bank of England voted 6-3 to keep the Bank Rate unchanged at 3.75%, compared with market expectations of a 7-2 split. The BoE warned that higher energy prices are likely to push inflation higher later this year, with risks now tilted to the upside, although the outlook remains highly dependent on developments in the Middle East. Meanwhile, renewed US airstrikes on Iran lifted oil prices and weighed on risk sentiment, while the Federal Reserve added to market uncertainty by leaving interest rates unchanged despite three FOMC members dissenting in favor of a rate hike.

The UK 10-year gilt yield was little changed at 5.04% on Thursday, hovering near the two-month high reached last week as investors awaited the Bank of England's policy decision. While the BoE is widely expected to keep interest rates unchanged, markets will focus on the voting split and any signals on the future policy outlook. Meanwhile, renewed US airstrikes on Iran in response to attacks on American forces across the Middle East lifted oil prices and dampened risk appetite. The Federal Reserve also added to market uncertainty on Wednesday by leaving interest rates unchanged, despite three FOMC members dissenting in favor of a rate hike.

The UK 10-year gilt yield climbed to 4.97% on Wednesday, rebounding from two-week lows as renewed military exchanges between the US and Iran drove oil prices higher, reviving inflation concerns. Investors also remained cautious ahead of the US Federal Reserve's policy decision later in the day and the Bank of England's meeting on Thursday, both of which are expected to provide further guidance on the outlook for interest rates. The Federal Reserve is widely expected to keep rates unchanged, although markets still assign roughly a 30% chance of a 25-basis-point hike. In the UK, the Bank of England is also expected to leave its Bank Rate at 3.75%, with investors closely watching the vote split for clues on the future policy path. Recent data showed UK inflation slowed to a 15-month low of 2.6% in June, below the BoE's forecast. However, businesses and government officials have warned that the recent spike in energy prices could lift inflation again in the coming months.