09.01.202609:16:18UTC+00UK 10-Year Gilt Yield Drops Sharply in Early 2026

The yield on the UK 10-year gilt has markedly decreased to approximately 4.40%, experiencing a drop of about 13.5 basis points during the first trading week of January—marking the most significant decline since October. This is attributed to increasing confidence that UK inflation is subsiding more swiftly than anticipated, which could enable the Bank of England to initiate interest rate cuts after maintaining caution throughout much of the previous year. The UK's annual inflation rate decelerated to 3.2% in November 2025, the lowest in eight months, compared to 3.6% in October and contrary to the Bank of England's forecast of 3.4%. Investors are now factoring in a potential initial quarter-point rate reduction as early as April, with the likelihood of at least one additional cut by the end of the year. The rally is further supported by the UK government's decision to curtail the issuance of long-term bonds, thereby alleviating supply pressures at a time when demand from pension funds has diminished. Enhanced confidence in the government’s fiscal strategies has also contributed to alleviating concerns regarding the deficit.