FX.co ★ UK Gilts Recover as Energy Prices Ease

UK gilts rebounded from their recent selloff, with the 10-year yield slipping to just below 5.2%, down from Wednesday’s 19-year high of 5.29%. Easing energy prices helped moderate inflation fears, leading markets to slightly pare back expectations for further Bank of England rate increases. Brent crude pulled back from six-week highs, and natural gas prices retreated from their strongest level since January 2023 after US President Donald Trump indicated that the renewed US military campaign in Iran would be short-lived. Nonetheless, gilt yields remain elevated, reflecting persistent concerns over energy-driven inflation, higher interest rates and the UK’s fiscal sustainability, despite Prime Minister Andy Burnham’s efforts to reassure investors of the government’s commitment to fiscal discipline. Markets are currently fully pricing in a Bank of England rate hike by year-end, with an additional increase anticipated by March 2027.