FX.co ★ UK 10-Year Gilt Yields Retreat on Weak GDP

The yield on the UK 10-year gilt has fallen below 4.5%, retreating from the recent peak of 4.57% recorded on December 10. This movement followed the release of UK GDP data, which came in below expectations. In October, the UK economy experienced a contraction of 0.1%, contrary to the anticipated 0.1% growth. This downturn was influenced by a less robust recovery in car manufacturing, along with contractions in the services and construction sectors. Successive monthly declines have heightened the possibility of a contraction in quarterly economic output, leading traders to adjust their forecasts, now anticipating potential rate cuts by the Bank of England in 2026. Markets currently estimate nearly a 90% probability that there will be a 25 basis point reduction to 3.75%. Projections for total easing by the end of 2026 have increased to approximately 60 basis points, a slight rise from the previous day. Meanwhile, the US Federal Reserve has made the widely expected move of a 25 basis point rate cut this month and signaled the likelihood of one more rate cut in the coming year.