FX.co ★ UK Gilt Yields Fall Further as BoE Holds Rates Steady

UK 10-year gilt yields retreated to around 5.25%, pulling back from 19-year highs, after the Bank of England left interest rates unchanged at 3.75% in a 6–3 vote. The Bank cautioned that borrowing costs may still need to rise if inflationary pressures intensify as a result of the conflict in the Middle East.

The MPC also voted unanimously to unwind its remaining stock of UK government bond purchases to zero via a multi-year programme. A combination of active sales and maturing holdings is expected to reduce the portfolio by an average of £46 billion per year through 2034. This implies a slower pace than previously and comes in below the £50 billion annual reduction anticipated by markets.

The BoE now projects inflation to rise to around twice its 2% target early next year, while it has upgraded its forecast for third-quarter GDP growth to 0.4%.

In the US, the Federal Reserve yesterday raised interest rates by 25 basis points—its first increase since July 2023—and signalled that a further hike is likely later this year.

Elsewhere, oil prices declined for a second straight session but remained elevated, reflecting ongoing uncertainty surrounding the situation in the Middle East.