FX.co ★ UK Gilt Yields Fall to September Lows

UK 10-year gilt yields extended their decline below 5.3%, reaching their lowest level since September 22, after Chancellor John Healey’s first budget met the government’s self-imposed borrowing rules and largely reassured investors. The reaction stood in sharp contrast to the heightened market volatility that had accompanied some previous fiscal statements.

Presented on Wednesday, the budget set out spending plans that were broadly in line with expectations and contained few surprises for markets. Healey said the government would use part of its fiscal headroom—now reduced to £15 billion from a previous estimate of £24 billion—to meet its key fiscal target while continuing efforts to repair the public finances amid the economic fallout from the Iran conflict.

At the same time, money markets are now almost fully pricing in a Bank of England rate hike on November 5, with further increases anticipated in February and July, and around a 50% chance of an additional move by December 2027. This reflects both stubbornly high inflation, which remains above the BoE’s 2% target, and a run of stronger-than-expected economic data.