FX.co ★ UK 10-Year Gilt Yield Inches Up

In June, the UK experienced a significant increase in its 10-year gilt yields, reaching 4.637%. This rise follows reports of the largest budget deficit for June since 2021, which has introduced additional pressure on the government's fiscal policies. The country recorded a £20.7 billion deficit for the month, an increase of £6.6 billion compared to the same period last year, marking the second-largest June deficit since recordkeeping began in 1993. Interest payments on national debt escalated to £16.4 billion, largely due to expenses tied to inflation-indexed gilts, representing the second-highest June figure since 1997. This surge in borrowing raises the likelihood that Chancellor Rachel Reeves might consider tax increases this autumn to help stabilize the UK’s public finances. The resultant higher yields have made borrowing costlier, further complicating the fiscal landscape. Year-to-date borrowing has reached £57.8 billion, which is £7.5 billion higher than the previous year but remains in line with the Office for Budget Responsibility's projections. Despite these fiscal challenges, there may be some positive economic indicators on the horizon: preliminary Purchasing Managers' Indexes (PMIs) are anticipated to show a slowing of contraction in manufacturing, robust growth in the services sector, and a likely rebound in retail sales, attributed to warmer weather.