16.04.202608:04:26UTC+00UK 10-Year Gilt Yield Edges Down

The yield on the UK 10-year gilt declined to 4.749% as Bank of England policymakers signaled no urgency to raise interest rates and optimism grew that the conflict in the Middle East may be nearing an end. Governor Andrew Bailey said it is too early to fully assess the impact of the Iran-related war, characterizing it as a major energy shock and stressing that its duration will be critical for the inflation outlook. Policymaker Megan Greene also noted that markets were right to scale back expectations for more aggressive rate hikes.

The conflict is expected to place significant strain on the UK economy by pushing up borrowing costs and inflation, with projections now indicating inflation will remain well above the central bank’s target. This leaves policymakers facing a difficult trade-off between elevated inflation risks and weakening growth as they head into their April 30 meeting.

Even so, recent data suggest the economy had begun to build momentum prior to the outbreak of the conflict. GDP grew by 0.5% in February, comfortably beating expectations.