23.10.202610:05:32UTC+00UK Gilt Yields Hold Steady as Investors Await Budget

UK 10-year gilt yields were little changed around 5.33% as investors weighed mixed economic signals ahead of next week’s budget. Demand for UK assets, including gilts and sterling, has strengthened as concerns over social unrest and rising debt levels in the eurozone have prompted investors to rotate out of other regional markets.

Flash PMI data indicated that business activity accelerated to an eight-month high, surpassing expectations. However, this positive signal was offset by a sharper-than-forecast drop in retail sales in September and a marked deterioration in consumer confidence in October.

Stronger-than-expected inflation figures earlier in the week reinforced expectations of further monetary tightening. Markets are currently pricing in at least three 25bp rate hikes by April 2027, with the first move potentially coming as soon as November.

In the run-up to next week’s budget, investors appear to be extending Chancellor John Healey the benefit of the doubt. Gilt markets have remained strikingly calm despite lingering concerns over ambitious spending plans that have yet to be fully costed.