FX.co ★ UK 10-Year Gilt Yield Trims Losses After IMF Warning

The UK's 10-year gilt yield saw a reduction in losses, settling at 4.67%, following a warning from the International Monetary Fund (IMF) to Chancellor Rachel Reeves about the necessity of maintaining stringent fiscal discipline. This caution comes despite the IMF raising the UK's growth forecast for 2024 to 1.2%. In its annual review, the IMF emphasized the importance of adhering to fiscal rules to avoid negative market reactions and potential increases in borrowing costs. With only £9.9 billion in leeway against her fiscal objectives, the IMF stressed that any additional expenditures, such as reversing pensioner benefit cuts, should be financed through savings or new tax implementations. This advisory is particularly timely as it precedes Reeves' Spending Review on June 11, where departmental budgets will be outlined. Moreover, the IMF highlighted risks associated with global trade tensions and escalating interest rates, advising readiness to alter policies as necessary. Markets are predicting approximately 40 basis points of Bank of England rate cuts this year. Concurrently, global bond markets experienced some relief following Japan's indication of measures to stabilize domestic bond fluctuations, coupled with optimism over reduced US-EU tariff tensions boosting market sentiment.