UK Gilt Yields Fall as Oil Slides Below $100

UK 10-year gilt yields reversed an early rise to fall to 5.20% on Tuesday, their lowest level since September 8, extending an eight-basis-point decline in the previous session as oil prices resumed their recent slide. Brent crude fell below $100 a barrel following reports that Iran could reopen the Strait of Hormuz if the US lifted its blockade of Iranian ports. Meanwhile, UK government data showed the budget deficit widened to £18.3 billion in August, above economists’ expectations of £15.5 billion. The larger shortfall was partly attributed to inflation, which has increased spending on state pensions and social benefits. Attention is now turning to next month’s Autumn Budget, with the government reportedly considering changes to fiscal rules that would allow borrowing for infrastructure and other construction projects to be excluded. A similar proposal was previously floated during Keir Starmer’s time in office.

UK 10-year gilt yields edged higher to 5.23% on Tuesday, following an eight-basis-point decline on Monday, as oil prices moved higher and investors digested fresh UK public finances data. Brent crude rose towards $102 a barrel, putting it on track to snap a four-day losing streak, amid continued uncertainty over oil flows and potential diplomatic efforts to ease tensions in the Middle East. Meanwhile, UK government data showed the budget deficit widened to £18.3 billion in August, above economists’ expectations of £15.5 billion. The wider shortfall was partly attributed to the impact of inflation, which has increased government spending on items including state pensions and social benefits. Attention is now turning to next month’s Autumn Budget, with the government reportedly considering changes to its fiscal rules that would allow borrowing for infrastructure and other building projects to be excluded. A similar proposal was previously floated during Keir Starmer’s time in office.

UK 10-year gilt yields fell to 5.25%, remaining below the 19-year highs reached earlier this month, as Brent crude eased toward $100 a barrel after recent comments from US President Donald Trump left the door open to diplomacy with Iran and helped ease fears of an imminent supply shock, while stronger regional crude flows have also reduced pressure on physical markets. Traders are slightly paring back expectations for Bank of England rate hikes after policymakers made clear last week that the outlook for inflation, and therefore interest rates, will depend heavily on the path of oil and gas prices in the coming months. Markets currently price around an 80% chance of a hike at the November meeting, while the probability of a second increase by year-end stands at roughly 56%. Meanwhile, investors are turning their attention to next month’s Autumn Budget, with the government reportedly considering plans to expand a new property tax to cover homes worth more than £1.5 million.