14.10.202608:37:16UTC+00Gilt Yields Ease as Traders Scale Back Rate Hike Bets

The UK 10-year gilt yield slipped below 5.4% as investors scaled back expectations for further Bank of England interest rate rises. Chief Economist Huw Pill, one of the Monetary Policy Committee’s more hawkish members, questioned market pricing that implies four rate hikes over the coming year. He argued the Bank should have responded more quickly to the energy shock linked to the Iran war, but stressed that stronger evidence would be required to justify a larger single rate move.

By contrast, Governor Andrew Bailey cautioned that a rate increase would become increasingly hard to avoid if the energy shock endures. Markets currently assign an almost 100% probability to a BoE rate hike in November, which would be the first in more than three years, though expectations for four 25-basis-point increases by June 2027 have eased slightly.

Separately, the IMF warned that the UK government must set out how it plans to finance higher defense spending, as the country faces an additional annual cost of about £11 billion to lift military expenditure to 3% of GDP by 2030.