FX.co ★ UK 10-Year Gilt Yield Edges Down from 1-Month High

The yield on the UK's 10-year gilt has eased to 4.55%, having previously reached a one-month high of 4.58% last Friday. This decline followed a marked selloff in response to Chancellor Rachel Reeves's decision to abandon planned income tax increases. This decision has sparked concerns about the fiscal sustainability of the UK, even though the Office for Budget Responsibility has adjusted its projected budget deficit downward, from £35 billion to £20 billion, aided by stronger revenues and wage growth. Although Reeves has opted for a smaller-scale budget rather than implementing major tax hikes, she is still anticipated to generate funds through threshold adjustments and reforms related to salary sacrifice. Political uncertainty remains due to divisions within the cabinet and recent challenges faced by Prime Minister Keir Starmer. The current market sentiment suggests a roughly 75% likelihood of an interest rate cut by the Bank of England in December. This week, investors will be closely monitoring key indicators such as inflation data, flash Purchasing Managers' Indexes (PMIs), and the potential for softer growth in the manufacturing and services sectors.