UK 10-year gilt yields slipped to 4.86%, though they remain close to multi-year highs, as investors assessed recent developments in the Middle East alongside UK inflation data for their implications for the Bank of England’s policy stance. US President Trump extended the Iran ceasefire indefinitely, keeping the US naval blockade in the Strait of Hormuz in place but signalling potential flexibility. Pakistan, acting as mediator, urged restraint, while Iran’s Tasnim news agency reported indications of possible US concessions.
On the economic side, UK headline inflation accelerated to 3.3% in March from 3.0% in February, largely driven by higher petrol prices linked to the Iran conflict. Core inflation eased slightly to 3.1% from 3.2%, coming in a touch below expectations, while services inflation picked up to 4.5% from 4.3%. Market participants have modestly pared back expectations for Bank of England rate increases this year and now price in around 39 basis points of tightening, still broadly consistent with two additional rate hikes.
