FX.co ★ UK Gilt Yields Drop as Record Budget Surplus Boosts Sentiment

UK 10-year gilt yields declined toward 4.35%, their lowest level since mid-January, after data showed a record public sector surplus for January. The government recorded a net borrowing surplus of £30.4 billion, far exceeding forecasts and marking the largest monthly surplus since records began in 1993, beating projections from the Office for Budget Responsibility. This strong fiscal performance, combined with a relatively dovish Bank of England meeting, soft labour market data, and subdued inflation, helped stabilise market sentiment and briefly offset political concerns. Investors also assessed upbeat economic data: the S&P Global UK PMI indicated that private-sector activity in February expanded at its fastest pace since April 2024, driven by solid growth in both manufacturing and services. In addition, January retail sales surprised to the upside, rising 1.8% month-on-month including fuel and 2.0% excluding fuel.