UK Gilt Yields Hold Near Recent Lows as Oil Prices Ease

UK 10-year gilt yields stabilized around 5.23%, close to their lowest level since September 8, as a recent decline in oil prices supported the broader market. Brent crude remained below $100 a barrel amid reports that Saudi Arabia was preparing to restart a key pipeline and that the US had made progress in talks with Iran, despite President Trump’s earlier threat against Iran at the UN General Assembly. The move in oil prices, however, did little to ease expectations for Bank of England tightening, with markets still pricing a solid chance of a 25bp rate hike in November. Meanwhile, preliminary September PMI data showed continued UK business expansion, although growth slowed slightly and came in below expectations. Services firms cited weak domestic demand and geopolitical uncertainty as headwinds, while manufacturing activity was boosted by AI investment and higher defense spending. In the US, hawkish comments from Fed policymakers strengthened expectations of further rate hikes.

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.