The yield on the UK’s 10-year gilt fell to below 4.65%, retreating further from its recent peak of 4.9%, in line with a global decline in bond yields. This movement followed President Trump’s decision not to impose tariffs on Inauguration Day, as many had anticipated, although he later signaled plans for a 25% levy on Canada and Mexico starting February 1st. In the UK, wage growth accelerated to a six-month high in the three months leading up to November, in line with expectations. However, the unemployment rate unexpectedly rose to 4.4%, accompanied by the sharpest drop in payroll numbers since November 2020, indicating potential softening in the labor market. Against this backdrop, the BoE is widely expected to reduce the key interest rate by 25bps to 4.5% next month. Meanwhile, minutes from the annual consultation meetings from the DMO showed UK bond-market participants want the government to sell fewer long-dated gilts in the 2025-26 fiscal year due to waning pension fund demand.
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