21.08.202509:30:36UTC+00UK 10-Year Gilt Yield Climbs on PMI Data

The yield on the UK's 10-year government bonds increased to 4.71% following unexpected strength in PMI figures, indicating vigorous growth within the private sector. The composite Purchasing Managers' Index (PMI) reached 53.6 in August—its highest point in a year—surpassing both the predicted 51.8 and July’s figure of 51.5. The services sector spearheaded this growth, achieving a reading of 53.6, whereas the manufacturing sector experienced a further decline, dropping to 47.3. Firms, particularly those in the services industry, reported strong pressures on prices, exacerbating existing inflation concerns. With July's inflation rate at 3.8%, expectations for immediate easing by the Bank of England have lessened. Current market sentiments suggest a 57% likelihood of the Bank Rate remaining at 4% until the end of the year and a 75% chance of a reduction to 3.5% by the close of 2026. These sustained high borrowing costs create challenges for Chancellor Rachel Reeves as she navigates the autumn budget, potentially necessitating either spending cuts or tax increases. Nevertheless, there was some respite as the UK budget deficit contracted in July. Attention now pivots to Jerome Powell’s forthcoming address at Jackson Hole, following Federal Reserve minutes highlighting ongoing inflation risks. Meanwhile, the European Central Bank is anticipated to maintain its rates at 2%.