FX.co ★ UK Gilt Yields Hold Above 5% as Inflation Risks Persist

UK 10-year gilt yields held above the 5% mark as investors assessed persistent inflationary risks driven by Brent crude prices above $90 per barrel, the threat of fuel supply disruptions, low Eurozone gas storage levels, and the possibility of a prolonged conflict involving Iran. Markets were awaiting further details on Iran-related sanctions from US Treasury Secretary Scott Bessent later today, while upcoming remarks by Federal Reserve Chair Kevin Warsh at Jackson Hole on Friday were expected to provide additional guidance on the US interest-rate outlook.

In the UK, money markets continue to price in one additional Bank of England rate hike by the end of the year, with a further 25-basis-point increase anticipated by early 2027. Headline inflation rose to 2.9% in July, its highest level since March, while core inflation climbed to 2.6%.

At the same time, stronger PMI data and consumer confidence at a two-year high have given an early lift to new Prime Minister Andy Burnham. Nevertheless, the UK economy remains exposed to renewed inflationary pressures stemming from the Iran conflict.