UK 10-year gilt yields fell to 4.4%, their lowest level since January 16, as investors positioned ahead of a heavy schedule of domestic economic releases, including inflation, labour market, and retail sales data. Headline inflation is expected to slow to 3.0% in January, the weakest reading since March 2025, while core inflation is forecast to ease to 3.1%, a more than four-year low. The unemployment rate is projected to remain at 5.1% in the fourth quarter, its highest level since early 2021, with wage growth likely continuing to moderate.
Recent figures showed the UK economy expanded by just 0.1% in the fourth quarter of 2025, capping a difficult year and intensifying political pressure on Prime Minister Keir Starmer. Even so, markets continue to price in further monetary easing by the Bank of England. Although policymakers left interest rates unchanged at 3.75% in a split vote, they adopted a more dovish tone, signalling that inflation could move closer to the 2% target from April.
