UK Gilt Yields Near 19-Year High Ahead of BoE Meeting

The UK 10-year gilt yield climbed toward 5.4%, hovering near its highest level since August 2007, as surging oil prices and Britain’s vulnerability to energy shocks drove investors to increase bets on further Bank of England rate hikes ahead of Thursday’s policy meeting. BoE Governor Andrew Bailey has pushed back against expectations of another imminent hike, but rising energy costs have clouded the inflation outlook, with oil trading well above $100 a barrel amid renewed Middle East hostilities. Goldman Sachs expects the BoE to hold Bank Rate at 3.75% on Thursday, before delivering a 25-bp hike in November as inflation remains elevated and growth holds up. Markets are meanwhile pricing in four BoE hikes by mid-2027. In the US, the Federal Reserve is expected to raise rates by 25 bps on Wednesday, with inflation concerns likely to keep the focus on the outlook for further policy tightening.

The UK 10-year gilt yield dipped toward 5.3% as the energy price rally paused and investors digested key data ahead of next week’s policy meetings in the UK and US. Yields nevertheless remained close to 19-year highs, while the 30-year yield hovered near 6%, a level last seen in 1998. UK GDP grew 0.4% month-on-month in July, beating forecasts, while growth over the three months to July also held at 0.4%. Markets expect the BoE to leave rates unchanged next week after Governor Andrew Bailey said future decisions would depend on economic and geopolitical developments, pushing back against the view that another hike is inevitable. Still, markets are fully pricing four BoE rate increases by mid-2027 as elevated oil prices continue to fuel inflation concerns. In the US, the dollar remained supported by growing expectations of a Federal Reserve rate hike next Wednesday following stronger-than-expected core inflation data and signs of a resilient labor market.

The UK 10-year gilt yield dipped below 5.35% on Friday as the energy price rally paused ahead of a key US CPI report, which could reinforce expectations of a Federal Reserve rate hike next week. Yet, yields remain close to 19-year peaks, with the 30-year yield near 6%, a level last seen in 1998. Investors processed stronger-than-expected UK GDP data, with July’s month-on-month growth at 0.4%, beating forecasts, while growth over the three months to July matched the previous period at 0.4%. Meanwhile, Brent crude stayed close to a four-month high, and UK natural gas prices remained near a 3.5-year high, amplifying concerns about renewed inflationary pressures. Markets have nearly priced in a Bank of England rate hike in November and anticipate three additional increases by mid-2027, even as Governor Bailey clarified on Tuesday that future decisions will depend on economic and geopolitical conditions, dismissing the notion that a rate rise is merely a matter of time.