UK Gilt Yields Edge Higher

The UK 10-year gilt yield was little-changed at 5.44%, remaining close to multi-year highs, as stronger-than-expected labor market data reinforced expectations of a Bank of England rate hike next month. The unemployment rate unexpectedly fell to 4.7% in the three months to August, its lowest level since July 2025, while regular wage growth accelerated to 3.7%, slightly above forecasts of 3.6%. The data followed a series of stronger-than-expected releases last week, with the economy expanding 0.1% in August and the trade deficit narrowing unexpectedly, suggesting greater economic resilience than previously anticipated. Meanwhile, some major investors expect fiscal discipline to feature prominently in next week’s budget, helping support demand for gilts. Since Andy Burnham became prime minister, UK gilt yields have risen less than those in several other major bond markets, reflecting comparatively stronger investor confidence in the UK’s fiscal outlook.

UK 10-year gilt yields edged up to 5.4%, tracking European peers higher as unrest in France heightened concerns over its fiscal outlook. Protests across several French cities escalated into clashes and looting, adding pressure on President Emmanuel Macron’s government ahead of the 2027 presidential election. Meanwhile, some major investors are betting that fiscal discipline will feature prominently in next week’s UK budget, supporting demand for gilts. M&G, Ninety One, Mediolanum and Raymond James Wealth Management have bought government bonds ahead of the October 28 announcement, positioning for yields to fall if Chancellor John Healey can reassure markets that government spending and borrowing remain under control. Since Andy Burnham became prime minister, UK gilt yields have risen less than those in other major markets, particularly France, where political turmoil has heightened fiscal concerns. Gilts have therefore remained relatively resilient.

The UK 10-year gilt yield climbed to 5.38%, recovering from a three-week low recorded on October 15, as investors assessed stronger economic data and the outlook for interest rates and public finances. UK GDP unexpectedly expanded by 0.1% in August, avoiding forecasts of a contraction. The resilience has strengthened expectations that the Bank of England could raise rates, with markets largely anticipating a 25-basis-point increase on November 5, although those bets have eased slightly. Governor Andrew Bailey said there was limited evidence that higher energy costs were feeding into broader prices and wages, but cautioned that it remained too early to assess the risk of persistent inflation. Other policymakers, including Megan Greene and Huw Pill, have urged earlier action to prevent such second-round effects. Meanwhile, Chancellor John Healey is preparing his October 29 budget, promising measures to provide some economic relief while maintaining efforts to reduce the deficit.