The UK 10-year gilt yield sits at 4.54%, up 100 basis points this year, underperforming US Treasuries and German bunds.
UK 10-year Gilt yield up 100 bps in 2024
Last week, the Bank of England held its key interest rate steady at 4.75%, but an unexpected split vote—with three policymakers favoring rate cuts—hinted at the possibility of faster monetary easing in 2025. This stance reassured bond investors who had driven gilt yields higher amid persistent inflation and rising public debt. In contrast, the Federal Reserve cut rates but projected only two reductions next year, strengthening the dollar and weighing on the pound.
British wage growth continued to accelerate
Meanwhile, British wage growth continued to accelerate through October, and inflation hit an eight-month high of 2.6% in November, supporting the case for gradual rate cuts. However, the UK’s economic outlook remains grim, with GDP stagnating in the third quarter and second-quarter growth revised down to 0.4%, highlighting the challenges ahead for Prime Minister Keir Starmer’s new administration.
