UK gilt yields fell from 5% to 4.8% as markets reduced expectations for Bank of England rate rises after Governor Andrew Bailey pushed back on tighter policy. Analysts linked this to spare capacity in the economy and limited scope for wage-driven inflation effects.<\/p>\n
The Bank of England Decision Maker Panel survey, run from 6 to 20 March, showed one-month year-ahead CPI expectations rose by 0.5 percentage points to 3.5% year on year, a 27-month high. Over the same period, year-ahead wage expectations edged down by 0.1 percentage points to 3.5%.<\/p>\n
The final fourth-quarter 2025 GDP release showed real household disposable incomes fell by 0.4% year on year, compared with a 0.3% fall in the third quarter of 2025. The report said consumption could weaken into 2027 as the energy shock hits real incomes, with about 40% of annual pay deals set in April.<\/p>\n
Forthcoming data include March construction PMI and the March RICS housing survey, both expected to weaken. Mortgage pricing pressures were linked to two- and five-year interest rate swaps rising by about 50 basis points to their highest levels since December 2024.<\/p>\n
The market is finally catching up to our view that the Bank of England will not hike rates this year. We’ve seen Gilt yields pull back from their recent highs, and recent data from the SONIA futures market shows traders have now priced out almost any chance of a rate increase by December. This suggests that positioning for lower UK rates, for instance by receiving on interest rate swaps, could continue to be a profitable strategy.<\/p>\n
While the latest CPI figures for March showed inflation remains sticky at 3.6%, the key is that wage growth isn’t keeping pace. The March earnings data confirmed this with a flat 3.4% reading, backing the idea that a wage-price spiral is unlikely to take hold. This stagflationary environment reinforces the BoE’s cautious stance and limits the upside for the pound.<\/p>\n
The squeeze on household incomes we saw in late 2025 is getting worse, which is a major red flag for the UK economy. The recent GfK consumer confidence index for March plunged to a 15-month low, showing households are feeling the pain from the ongoing energy shock. This makes us increasingly bearish on consumer-focused stocks, suggesting long put options on the FTSE 250 could provide valuable downside protection.<\/p>\n
Leading indicators from the construction and housing sectors are flashing warning signs of a slowdown. The 50 basis point jump in five-year interest rate swaps since February has pushed mortgage borrowing costs to their highest levels since the market turmoil of late 2024. This tightening of financial conditions points to a sharp slowdown ahead, long before it will appear in official GDP data.<\/p>\n
In the coming weeks, volatility in UK assets will likely remain elevated due to the conflicting signals of sticky inflation and a slowing economy. While shorting GBP against the USD seems like a straightforward trade on a weaker UK outlook, options strategies could be more effective. Consider buying put spreads on UK equity indices to cheaply position for a downturn while capping your cost.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" UK gilt yields drop as Bailey dampens rate-hike bets; CPI expectations rise, wages soften, incomes fall.<\/p>\n","protected":false},"author":103,"featured_media":17037,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46867","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46867","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=46867"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46867\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17037"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=46867"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=46867"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=46867"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}