FX.co ★ UK Gilt Yields Ease

The UK 10-year gilt yield fell below 5.4% as mounting worries over social unrest and rising debt levels across the eurozone prompted investors to reduce exposure to regional assets, increasing demand for UK government bonds and sterling. At the same time, markets continued to assess stronger-than-expected inflation data and growing public borrowing ahead of next week’s budget and the Bank of England’s 5 November policy meeting. UK inflation rose to 3.5% in September, beating forecasts, with both core and services inflation also surprising to the upside. Investors now anticipate at least three quarter-point rate increases by April 2027, with the first potentially arriving as soon as November. Meanwhile, public sector borrowing reached £24.5 billion, taking total borrowing for April–September to £97.8 billion, around £6 billion above the Office for Budget Responsibility’s projection. Despite the deteriorating fiscal backdrop, some major investors expect the forthcoming budget to emphasize fiscal discipline, a stance that could help underpin continued demand for gilts.