UK Gilt Yields Remain Near Multi-Year Highs

The UK 10-year gilt yield remained around 5.4%, near multi-year highs, as investors assessed stronger-than-expected inflation and rising public borrowing ahead of next week’s budget and the Bank of England’s November 5 policy meeting. UK inflation rose to 3.5% in September, above the 3.4% forecast, while core and services inflation also exceeded expectations. Meanwhile, public sector net borrowing reached £24.5 billion, up from a year earlier and above forecasts. Cumulative borrowing for April to September totaled £97.8 billion, exceeding the Office for Budget Responsibility’s March projection by £6 billion. Despite the deterioration in public finances, some major investors expect the upcoming budget to emphasize fiscal discipline, potentially supporting demand for gilts. Elsewhere, resilient economic data, including a fall in unemployment and unexpected GDP growth, have reinforced expectations of tighter monetary policy, with markets pricing in a 25-basis-point rate hike in November.

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.