UK Gilt Yields Ease Amid Ongoing Iran Conflict Fears
UK Gilt Yields Eased on Friday but Still Saw a Steep Monthly Rise in July. The benchmark yield rose by 23 basis points, driven partly by concerns over inflation from the ongoing Middle East conflict and expectations of a tighter Bank of England policy stance.
The gilt market also benefited from declining oil prices as energy flows continued through key maritime routes despite limited progress in US-Iran talks. Oil prices had been fueling worries about long-term inflation, which in turn boosted expectations for a more aggressive monetary policy approach by the BoE.
On Thursday, the Bank of England voted 6-3 to keep interest rates unchanged in July, with three policymakers advocating for a hike against market expectations of a 7-2 split. However, Governor Andrew Bailey pushed back against the idea of an imminent tightening cycle and some officials noted that rate cuts could return to focus if the Iran conflict ends.
The markets currently price in one rate hike by year-end.