14.07.202613:26:26UTC+00UK Gilt Yields Ease but Remain Close to Two-Month Highs

UK 10-year gilt yields slipped back below 5%, though they remained close to two-month highs, following a decline in US Treasury yields after softer-than-expected US inflation data tempered expectations for additional Federal Reserve rate hikes this year. At the same time, rising tensions in the Middle East have fueled concerns that higher energy prices could rekindle inflation and force interest rates higher, prompting markets to increase their wagers on further Bank of England tightening. Investors now almost fully anticipate two rate hikes in 2026, with a September increase fully priced in.

Markets are also increasingly focused on UK politics, as Andy Burnham is set to replace Keir Starmer as prime minister on July 20. Particular attention is on his choice of chancellor, with Ed Miliband—widely viewed as inclined toward more expansionary fiscal policy—emerging as the leading contender. That prospect has unsettled gilt investors, who are already sensitive to the UK’s perceived fiscal vulnerabilities.