Gilt Yields Hit a Two-Month High as Markets Bet on Rate Rises
British borrowing costs pushed higher again on Friday, with the ten-year gilt yield reaching around 5.1 per cent, a two-month high, as the oil-driven inflation scare prompted traders to bet on interest-rate rises rather than cuts. The reversal, days before the Bank of England’s decision on 30 July, threatens to raise the cost of Mr Burnham’s spending plans and to feed through to mortgages. Sterling slipped towards $1.33.
Money markets, which had been pricing gradual rate cuts, now lean towards the Bank raising Bank Rate over the coming months, though it is widely expected to hold at 3.75 per cent next week. The shift reflects fears that Brent crude near $100 will push inflation, already forecast to climb back towards 3 per cent, higher still. British debt remains the dearest to service in the G7, and the scars of the 2022 mini-Budget keep a premium on gilts. Watch the Bank’s guidance next Thursday for how seriously it takes the oil shock.