FX.co ★ UK 10-Year Gilt Yield Eases

UK 10-year gilt yields dipped to 4.53% as investors focused on the upcoming budget announcement on November 26. Finance Minister Rachel Reeves faces the challenge of identifying tens of billions of pounds to adhere to her fiscal rules, against the backdrop of the Office for Budget Responsibility (OBR) anticipating reductions in growth and productivity forecasts, which could lead to a potential £20–30 billion deficit in public finances. Current economic data highlights the issues at hand: borrowing has reached unprecedented levels outside of the pandemic, business activity has stalled, retail sales have declined, and household sentiment has weakened. Inflation decreased to 3.6% in October, increasing expectations that the Bank of England will soon resume cutting interest rates. The market currently suggests an 80% likelihood of a 25-basis point cut in December, contributing to the reduction in gilt yields as we approach the budget.