The UK 10-year gilt yield has fallen sharply to around 4.40%, down about 13.5 basis points in the first trading week of January, the most since October due to growing confidence that UK inflation is easing faster than expected, allowing the Bank of England to begin cutting interest rates after staying cautious for much of last year. The annual inflation rate in the UK slowed to 3.2% in November 2025, the lowest in eight months, compared to 3.6% in October and below the Bank of England’s prediction of 3.4%. Investors are now pricing in a first quarter-point rate cut as early as April, with a high probability of at least one more cut before year-end. Adding to the rally, the UK government is reducing issuance of long-dated bonds, easing supply pressures at a time when demand from pension funds has weakened. Improved confidence in the government’s fiscal plans has also helped calm deficit concerns.
