FX.co ★ UK 10-Year Bond Yield Falls

The yield on the UK's 10-year government bonds (gilts) declined to 4.45%, marking its lowest point in over a week. This drop followed the release of inflation figures that were significantly lower than anticipated, strengthening the market's expectation that the Bank of England is likely to implement an interest rate reduction this Thursday. November's annual inflation decelerated to 3.2%, falling short of the forecasted 3.5% and the central bank's own prediction of 3.4%. Earlier, labor market statistics revealed a rise in the unemployment rate to its highest since 2021, alongside slower wage growth, which was, however, less pronounced than expected. In addition, GDP data from the previous week highlighted that the UK economy contracted for the second successive month in October. Given these conditions, it is broadly anticipated that the Bank of England will resume its monetary easing and lower the Bank Rate by 25 basis points to 3.75%, the lowest since 2022, following a pause on rate changes in September and November. The markets are now anticipating approximately 66 basis points of monetary easing by 2026, up from 58 basis points projected before the release of the Consumer Price Index data.