FX.co ★ UK Gilt Yields Hold Near May Highs as Inflation Concerns Intensify

UK 10-year gilt yields were broadly steady at 4.94%, hovering near their highest level since May 21, as inflation worries intensified amid rising tensions in the Middle East. The US and Iran carried out reciprocal air strikes, and US President Donald Trump warned of further action unless Tehran agrees to an immediate peace deal.

Money markets are currently pricing in at least a 25-basis-point interest rate increase by the Bank of England in September, with a strong likelihood of a second hike before year-end. Attention is now turning to Friday’s data releases, including monthly GDP, manufacturing output, and the foreign trade balance.

Economists forecast that UK GDP likely contracted by 0.1% in April, reflecting the lagged impact of the Iran conflict on businesses and consumers. The downturn is seen as being exacerbated by political uncertainty surrounding the Labour Party’s leadership.