The UK 10-year gilt yield extended its decline to 4.4%, reaching its lowest level since mid December, as weaker-than-expected CPI data fueled speculation of early interest rate cuts by the BoE. Headline inflation held steady at 3.8% in September, defying forecasts of an increase to 4%, with food price growth finally easing. Meanwhile, core inflation rate slipped to 3.5% from 3.6%, also below expectations of 3.7%. Although inflation remains nearly double BoE’s 2% target, the figures offered some relief for Chancellor Reeves. Last week, she signaled plans to unveil “a range of policies” in the next budget aimed at “bearing down on some of the costs that people face.” Government borrowing reached £99.8 billion in the first half of the fiscal year, £7.2 billion above the OBR’s forecast. Looking ahead, markets expect the BoE to begin cutting interest rates as soon as February, as inflation is expected to continue moderating and labor market data point to further signs of cooling.
