FX.co ★ UK Gilt Yields Ease as BoE Rate-Hike Bets Retreat

The UK 10-year gilt yield slipped toward 5.35%, pulling back from recent 19-year highs, as the rally in oil prices paused and an in-line UK inflation report led traders to scale back expectations for further Bank of England rate increases. Annual UK inflation rose to 3.1% in August, as widely anticipated, from 2.9% in July, mainly reflecting higher fuel costs. Core CPI held steady at 2.6%, while services inflation—a key metric for the Bank of England—registered 3.4%, just below the 3.5% consensus. No change in UK interest rates is expected at Thursday’s meeting, though a hike remains largely priced in for November, albeit with reduced conviction. Looking further ahead, markets have also pared back expectations for additional tightening through the end of next year, with four hikes now comfortably priced in versus five previously. Elsewhere, oil prices eased from four-month highs after a surprise increase in US crude inventories, despite mounting supply disruptions across the Middle East.