27.08.202608:59:47UTC+00UK Gilt Yields Ease as Rate Hike Bets Shift to 2027

UK 10-year gilt yields slipped toward 5% at the end of August, hovering near Wednesday’s two-week low of 4.943%. The move followed a decline in Brent crude prices, which eased inflation concerns and led markets to push back expectations for the next Bank of England rate increase to 2027 from late 2026.

According to LSEG data, markets are currently pricing in about 24 basis points of tightening by December and 36 basis points by the Bank’s February 2027 meeting. Less than 4 basis points are priced in for the BoE’s September meeting, implying roughly a 15% probability of a rate hike.

Most economists have consistently expected the BoE to leave rates unchanged at 3.75% this year. Markets had nevertheless been assigning some probability to a hike, reflecting worries that an escalation in the US–Iran conflict could reignite inflationary pressures.

Meanwhile, UK inflation accelerated to 2.9% in July, driven largely by higher household energy bills, and is projected to rise further toward the end of the year. The labour market, however, has remained subdued. Investors now turn their attention to Fed Chair Kevin Warsh’s remarks at the Jackson Hole symposium on Friday.