UK 10-Year Gilt Yield Rises to 6-Week High

The UK 10-year gilt yield rose to 4.656%, its highest in six weeks, after June inflation came in above expectations at 3.6%, compared to a 3.4% forecast. The surprise rise has led traders to slightly reduce bets on Bank of England (BoE) rate cuts.

Markets still price in an 80% chance of a 25 basis point cut in August and expect one more cut by year-end.

Although inflation is above the BoE’s 2% target, much of the increase is attributed to changes in energy price caps, which are expected to fade.

Attention has shifted to the UK labor market, with BoE officials highlighting job market weakness as a key factor in future policy decisions.

Policymakers have signaled they are looking past recent inflation spikes, viewing them as temporary.

As a result, this week’s job and wage data may have a greater impact on upcoming BoE decisions.