UK 10-year government bond yield falls below 5% as oil prices retreat, easing inflation concerns

⑴ The yield on 10-year UK government bonds has fallen below 5%, as falling oil prices ease short-term inflation concerns. Brent crude has retreated from a two-month high, and the suspension of hostilities and resumption of diplomatic contact between the US and Iran have led the money markets to slightly reduce expectations of further monetary tightening. ⑵ Investors are now focused on the Bank of England’s policy decision later this week, with markets widely expecting policymakers to keep interest rates unchanged at 3.75%. Recent inflation data has reinforced this view, with the annual growth rate of consumer prices slowing to 2.6% in June, a 15-month low and below the Bank of England’s forecast. The delayed transmission of rising wholesale energy costs to regulated household bills has also left UK inflation below that of the US and the euro area, where the European Central Bank still expects to raise rates again in September or October.