UK 10-year gilt yields edged lower but remained above 4.95%, nearing levels last seen in 2008, as traders intensified bets on further Bank of England rate hikes. The move was driven by surging crude prices and growing inflation concerns. According to the Bank of England’s Decision Maker Panel, businesses now expect CPI inflation to reach 4% over the next year, up from 3.5% in March, and plan to raise prices by 3.8%, even as wage growth is projected to slow.
Market sentiment briefly improved following reports that Iranian Foreign Minister Abbas Araghchi would arrive in Islamabad on Friday, reviving hopes for progress in US–Iran negotiations. Nonetheless, Brent crude remains on course to end the week up 14%, underscoring the limited headway in peace talks.
Domestically, UK retail sales unexpectedly rose by 0.7% last month, bolstering expectations of further BOE tightening. Markets are now fully pricing in two quarter-point rate increases in 2026 and are contemplating the possibility of a third hike by year-end.
