LONDON – UK borrowing costs fell sharply on Wednesday, after lower-than-expected consumer price inflation data was released both at home and in the US.
Return on 10-year British government bonds It was down 16 basis points at 4.727% at 4pm in London, putting it on track for its first daily decline since December 31. The increase has been taken since the beginning of the year due to concerns about the country's growth outlook and the benchmark debt burden. Return to its highest levels since 2008
Return on 2 years UK bonds, known as gilts, fell 15 basis points to 4.45%. Long term return 30-year bonds The index fell 15 basis points from its highest level in 27 years.
Investors cheered the release UK inflation data It showed a 2.5% annual increase in December, slightly below the 2.6% forecast of economists polled by Reuters. Closely watched services inflation fell to 4.4% from 5%, its lowest level since March 2022.
The publication boosted expectations of a Bank of England rate cut in February, and was seen as a much-needed glimmer of good news for Finance Minister Rachel Reeves.
Reeves is In the face of economic recession It appears at Risk of violating self-imposed financial rules It stipulates that all day-to-day government spending be entirely financed by revenues, with the goal of lowering the country's debt-to-GDP ratio. UK monthly growth data for November is due on Thursday.
The bond market was little affected Auction Mid-morning UK time for 2034 bonds, which showed strong appetite for UK debt despite recent moves in the bond market, despite lower demand than seen last year.
However, the declines in yields accelerated after the report US Consumer Price IndexWhich helped ease concerns about the return of inflation as well This led to a sharp decline in US Treasury yields. US headline CPI was in line with expectations on an annual basis, but core inflation excluding food and energy was slightly lower than expected.
US Treasuries also saw a broad sell-off in 2025, as traders brace for a cautious pace of interest rate cuts from the Federal Reserve this year.
Gabriella Dickens, G7 economist at AXA Investment Managers, warned that the decline in headline inflation in the UK is likely to be short-lived as the impact of energy prices continues to subside.
“We do not think this means the UK has an inherent inflation problem, as markets seem to have been concerned about in recent months,” Dickens added.
“We see an increasing risk that inflation will fall below target over the medium term, and we believe the BoE will continue to consider near-term price pressures this year, as a result.”
