UK 10-year gilt yields dipped toward 4.75%, hitting their lowest since mid-April, as traders scaled back expectations for Bank of England rate hikes following weaker-than-expected UK inflation data and a continued drop in oil prices. Annual CPI held steady at 2.8% in May, falling short of economists’ forecasts for a rise to 3%. However, the services sector saw a faster increase, climbing to 3.7% from 3.2% in April and surpassing the 3.6% estimate. The core inflation rate rose less than expected, edging up to 2.6% from 2.5%. Oil prices, meanwhile, reached fresh three-month lows amid growing expectations of a US-Iran deal this week. Markets now anticipate just 25 basis points of rate increases for 2026, equivalent to a single hike by December. Before the conflict in Iran, the BoE had been expected to cut rates this year. However, the surge in crude prices, still well above pre-war levels of $65 per barrel, disrupted those plans, exposing the UK’s susceptibility to energy shocks.

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