FX.co ★ UK 10-Year Gilt Yield Edges Down After Inflation Data

The UK 10-year gilt yield eased to around 5.05% as investors digested the latest inflation and labour market data for signals on the Bank of England’s policy path. Headline CPI rose to 2.9% year-on-year in July from 2.6% in June, in line with market expectations, while core inflation was unchanged at 2.6%. The broadly anticipated readings led traders to slightly scale back the probability of a rate hike before year-end.

Recent labour market figures also pointed to cooling conditions: the unemployment rate unexpectedly held at 4.9%, while payroll employment fell by 86,000 compared with a year earlier. Regular pay growth came in a touch stronger than forecast, at 3.5%.

Although the UK economy has displayed some resilience, elevated oil prices and diminishing prospects for a US-Iran agreement continue to present upside risks to inflation. Markets still assign a meaningful probability to at least one Bank of England rate increase this year, even as most economists expect policy rates to remain on hold.