UK Bond Yields Edge Lower

The UK 10-year gilt yield eased to 5.4%, tracking US Treasury yields lower following a US market holiday, while oil prices ended a three-session rally. Investors also welcomed the IMF’s upward revision to its UK growth forecast, with GDP now expected to expand by 1.3% this year, up from the 1.0% projected in July. Attention is now turning to Chancellor John Healey’s upcoming Budget later this month, after the Institute for Fiscal Studies warned that the government must find £35 billion to meet its spending ambitions, fueling speculation over potential tax increases. On monetary policy, hawkish BoE policymaker Megan Greene argued that stronger-than-expected growth and a resilient labor market suggest interest rates should be higher than the current 3.75% to bring inflation under control. Markets are pricing in four rate hikes over the next 12 months, although many analysts consider this outlook excessive, given that several policymakers already view the current rate as above neutral.

The UK 10-year gilt yield climbed to 5.45%, approaching a recent 19-year high, as rising oil prices and renewed inflation concerns weighed on sentiment, while investors increasingly focused on Chancellor John Healey’s upcoming Budget. Brent crude rose to $107 a barrel following a deadly attack on Riyadh’s airport in Saudi Arabia, while Ukraine reported continued Russian strikes on its energy infrastructure. Meanwhile, the Institute for Fiscal Studies has warned that Healey must find £35 billion to meet the government’s spending ambitions, fueling speculation over potential tax rises. Investors are now awaiting Wednesday’s US inflation data and this week’s IMF-World Bank meetings, where Bank of England officials are expected to offer further insight into the inflation outlook and interest-rate trajectory. Markets are pricing in four BoE rate hikes over the next 12 months, but this may prove excessive, as several policymakers already consider the current 3.75% rate to be above neutral.

UK 10-year gilt yields remained above 5.4%, close to a recent 19-year high, as investors weighed easing oil prices against hawkish remarks from Bank of England policymakers. Brent crude retreated as Middle East supply concerns eased, while Wednesday's US inflation data will be closely watched for clues about the Federal Reserve’s future monetary policy. In the UK, BoE Chief Economist Huw Pill said central banks must remain focused on controlling inflation, while MPC member Megan Greene warned that UK wage growth could reach around 3.5% in 2027, potentially sustaining inflationary pressures and increasing the need for further rate hikes. Governor Andrew Bailey also stressed that central banks must remain focused on bringing inflation down. Markets are pricing in a BoE rate hike in November, as the Bank remains the only major central bank yet to begin tightening monetary policy in response to inflationary pressures stemming from the US-Iran war.