Sterling Slips to 13-Year Low on Rising UK Gilt Yields

The value of sterling has fallen to $1.35395 as UK 10-year gilt yields reached their highest level since 2008, at 5.2554%. This increase in longer-term government borrowing costs typically signals that investors want more compensation for inflation risk or heavy public borrowing. The rise in gilt yields is also affecting the currency, with markets treating October's budget as a test of whether the new government can fund its plans without widening the deficit.

The Bank of England is expected to keep the Bank Rate at 3.75% this month, but gilt yields can move independently of monetary policy. This means that financial conditions may be tightening even if the policy rate remains unchanged.

For households with fixed-rate mortgages, a higher 10-year gilt yield can result in higher quoted remortgage rates. This can curb demand and help explain why mortgage approvals have been weak despite the bond market's influence on interest rates.