UK 10-year gilt yields slipped to 4.99% on Friday, mirroring a pullback in oil prices as energy shipments continued to move through key maritime routes despite limited progress in US-Iran negotiations. Nonetheless, the benchmark yield climbed 23 basis points over July, with persistently high oil prices stoking concerns about the longer-term inflation impact of the Middle East conflict and reinforcing expectations of a tighter policy stance from the Bank of England.
Gilt prices also found support from receding political risk, after the UK installed its seventh prime minister in ten years and the new administration pledged to respect existing fiscal rules. On Thursday, the BoE voted 6–3 to leave interest rates unchanged in July, with three policymakers backing a hike, surprising markets that had largely anticipated a 7–2 split. Even so, Governor Andrew Bailey pushed back against the prospect of an imminent tightening cycle, and some officials indicated that rate cuts could return to the agenda if the Iran conflict is resolved. Current market pricing now reflects expectations of one additional rate increase by year-end.
