The yield on the UK's 10-year government bonds, known as gilts, has decreased to 4.5%, paralleling a drop in US Treasury yields. This shift is attributed to growing investor optimism regarding potential interest rate reductions against a backdrop of modest inflation. In the United States, softer inflation figures are heightening the belief that the Federal Reserve might start loosening its monetary policy later this year, even as officials exercise caution. Meanwhile, the Bank of England is reluctant to lower rates, owing to persistently high core inflation, which has shown minimal change over the past year.
In trade news, a new agreement between the UK and the US has been implemented, significantly lowering tariffs on British automotive exports from 27.5% to 10%, and completely removing duties on aerospace products such as engines and aircraft parts. Nevertheless, a 10% standard tariff on cars remains, and discussions are ongoing to remove tariffs on key steel products. Additionally, the UK's GDP growth for the first quarter of 2025 has been confirmed at 0.7%, consistent with earlier estimates.
