FX.co ★ UK Gilt Yields Ease as Markets Digest Inflation Data

The yield on the UK 10-year gilt slightly decreased to 4.44%, as global bond markets settled after the sharp selloff in Japan's long-term bonds yesterday. Investors shifted their focus to a slew of UK economic indicators. Notably, the annual inflation rate increased to 3.4% in December, rising from an eight-month low of 3.2% in November, and surpassing market predictions of 3.3%. Meanwhile, core inflation remained steady at 3.2%, aligning with forecasts. Service inflation, a key indicator of domestic price pressures watched by the Bank of England, increased marginally to 4.5% from 4.4%, which was less of an increase than expected. This data came on the heels of a labor market report indicating that the unemployment rate is still at a pandemic-era high of 5.1%. Additionally, investors continued to observe escalating tensions between the US and Europe after President Donald Trump asserted that Europe would be unlikely to “push back too much.” He also warned of potential additional tariffs on eight European countries unless the US were permitted to “buy” Greenland.