The yield on 10-year UK government bonds falls below 5.4%, as eurozone risk-driven capital flows into UK bonds.

⑴ Due to the impact of social unrest and rising debt risks in the Eurozone, capital has flowed out of Eurozone assets, resulting in increased buying of UK government bonds and the British pound. The yield on the UK's 10-year government bonds has fallen back below 5.4%, but remains within a multi-year high range. ⑵ In September, UK CPI inflation rose to 3.5%, with both core and services inflation exceeding market expectations; coupled with continued weakness in public finances, public sector cumulative borrowing from April to September reached £97.6 billion, £5.8 billion higher than official estimates. ⑶ Market pricing indicates that by April 2027, the Bank of England could implement a total of three 25 basis point rate hikes, with a significant likelihood of the first increase during the November policy meeting. ⑷ Despite weak fiscal data, many major institutions predict that next week’s autumn budget will strictly adhere to fiscal discipline, and these expectations are likely to continue supporting demand for UK government bonds.