The yield on the UK's 10-year gilt has fallen to 4.63%, marking its lowest level in over two weeks, driven by a global upturn in bond markets. This shift follows Japan's recent measures to stabilize its bond market, which had been experiencing increased yields. In response to a period of market instability, Japan's finance ministry engaged with investors to assess the appropriate level of government debt issuance. On the geopolitical front, there is cautious optimism regarding former President Donald Trump's stance on potential 50% tariffs against the EU. After a discussion with EU leaders, Trump has extended the deadline for tariff imposition to July 9, allowing additional time for negotiations.
Domestically, the UK has seen a sustained increase in food inflation, which climbed for the fourth consecutive month in May, reaching its peak in a year, according to the British Retail Consortium. The overall inflation rate remained elevated at 3.5% in April, surpassing forecasts. Despite these pressures, retail sales exceeded expectations with a 1.2% rise in April, and consumer confidence showed improvement in May, as reported by GfK. In light of these developments, market analysts are forecasting a 50% probability of the Bank of England enacting a rate cut by August, with the possibility of another reduction by the end of the year.
