The UK 10-year gilt yield rose to 5.05%, the highest level since May 19, as investors weighed the impact of rising oil prices against signs of easing domestic inflation. Brent crude advanced to its strongest level in more than a month after President Donald Trump warned of further strikes on Iran and vowed to retaliate if Iran-backed Houthi rebels threaten shipping in the Red Sea.
At the same time, UK annual inflation slowed to 2.6% in June, its lowest reading since March 2025 and slightly below the 2.7% consensus forecast, largely due to weaker transport and food prices. However, core inflation held at 2.6% and services inflation at 3.6%, both marginally above expectations, highlighting persistent underlying price pressures. Businesses remain wary, with CBI economist Martin Sartorius cautioning that inflation could re-accelerate in the coming months.
Chancellor John Healey welcomed the softer inflation data but stressed that more support is still required. In response, the government announced a cut in VAT on electricity bills and the introduction of a £2 cap on single bus fares across England starting in January.
