The UK 10-year gilt yield fell further to 5.15% on Friday, as investors awaited fresh guidance from US employment data due later in the day and continued to assess signals from major central banks. The global bond market found some relief on Thursday after Federal Reserve Governor Christopher Waller tempered expectations of an imminent Fed rate hike, while the recent rally in oil prices also began to lose steam.
Even so, gilt yields remain elevated, reflecting persistent concerns about energy-driven inflation and the UK’s fiscal sustainability. Markets are now fully pricing in a Bank of England rate increase by year-end, with another hike anticipated by March 2027. BoE Chief Economist Huw Pill noted that raising interest rates now could lower the risk that the central bank will have to tighten policy more aggressively later to contain inflation, which has been exacerbated by the economic fallout from the war involving Iran.
