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Bank Of England · Gilt Yields · Inflation · UK Economy
UK 10-year gilt yields fell to a one-month low of 4.4% on February 16, as investors positioned for anticipated Bank of England policy easing amidst slowing inflation, a weakening economy, and political shifts, despite the central bank holding rates at 3.75%.
Headline inflation is forecast to slow to 3.0% in January, the weakest reading since March 2025, while core inflation is expected to ease to 3.1%, marking a more than four-year low. The unemployment rate is seen holding steady at 5.1% in the fourth quarter, its highest since early 2021, with wage growth continuing to soften.
The UK economy grew just 0.1% in the fourth quarter of 2025, adding to political pressure on Prime Minister Keir Starmer. Markets are pricing in further policy easing from the Bank of England, which struck a dovish tone, indicating inflation could move closer to the 2% target from April.
Subsequent reports from June 2026 show gilt yields continued to fall, reaching 4.78%, 4.81%, and 4.822%, driven by weaker UK flash PMI data, which reinforced expectations of slower economic momentum and reduced the likelihood of Bank of England rate hikes. Political uncertainty eased after Prime Minister Keir Starmer's resignation, with Andy Burnham emerging as a leading candidate, though concerns remain over his fiscal policy and potential increased gilt issuance.
June PMI data showed the UK economy contracted for a second consecutive month, with the composite index falling to 49.4.