FX.co ★ UK 10-Year Gilt Yield Falls to Over 3-1/2-Month Low

The yield on the UK's 10-year government bond dropped below 4.5%, marking its lowest level since July. This decline comes amid reports that the government borrowed an additional £7.2 billion more than anticipated during the first half of the fiscal year, heightening fiscal concerns ahead of Chancellor Rachel Reeves's upcoming budget on November 26. The fiscal deficit has climbed to £99.8 billion, significantly exceeding the Office for Budget Responsibility's (OBR) projection of £92.6 billion. September alone saw borrowing reach £20.2 billion, the second-largest amount recorded for that month. Now, Chancellor Reeves is under increased pressure to adhere to her fiscal policies, with analysts suggesting she may need to secure up to £35 billion to rebuild fiscal reserves. The Office for National Statistics (ONS) attributes part of this fiscal deterioration to weaker tax revenues and increased welfare expenditures. Additionally, bond yields have been affected by subdued economic data and dovish statements from Bank of England Governor Andrew Bailey, who noted that the UK economy is operating "below potential." This updated economic context has resulted in the jobless rate rising to 4.8%, leading traders to fully anticipate a rate cut by February.