The UK 10-year gilt yield hovered around 4.97%, close to the near two-month high reached earlier in the week, as robust economic data and higher oil prices bolstered expectations that the Bank of England will raise interest rates later this year. The UK economy grew 0.1% in May, rebounding from a 0.1% contraction in April, while GDP expanded by 0.7% in the three months to May, surpassing forecasts of 0.5%. Markets now fully price in a rate hike in November, with another increase anticipated by March 2027.
This market view contrasted with comments from BoE policymaker Sarah Breeden, who argued that the UK’s weak economy and softening labor market reduce the need for further tightening, despite inflationary risks arising from the Iran conflict. At the same time, gilt yields stayed below 5%, as reports that Home Secretary Shabana Mahmood is set to become chancellor under incoming Prime Minister Andy Burnham helped ease concerns over a more expansionary fiscal stance.