UK Markets Close Higher; Gilt Yields Ease to 4.85% and Sterling Firms
UK markets closed Wednesday with modest gains across the board. The FTSE 100 closed at 10,715, up 0.09%. UK 10-year gilt yields eased to 4.85%, extending the post-Burnham speech rally into a fourth consecutive session. Sterling firmed to $1.3248. Bank of England rate-cut pricing for the 6 August meeting has held around 60% probability on the combination of falling oil prices, Burnham fiscal-rule continuity, and easing inflation expectations. Defence stocks continued their post-DIP rally with BAE Systems, Rolls-Royce and Babcock all higher on the day. The Doha technical-talks downgrade did not materially disturb markets: oil held at $86.00 and volatility measures ticked lower.
Bank of England rate-cut pricing has tightened materially over the past week on the combination of Burnham’s fiscal-rule commitment and the Iran de-escalation easing oil-driven inflation pressure. The Ofgem 13% price cap rise that took effect today will feed into UK headline inflation figures but is already largely priced in by markets. The Bank of England Monetary Policy Report on 6 August is the next major UK macro variable. Sterling positioning has firmed materially since Monday as clarity has emerged on both the Burnham economic framework and the DIP defence commitment.