Gilt yields near Mini Budget highs after hotter-than-expected UK inflation

Markets raise peak rate expectations

Gilt yields have soared to levels not seen since the Mini Budget following the release of worse-than-expected UK inflation data on Wednesday (24 May), and the prospect of a higher terminal rate.

The UK headline CPI rate of 8.7% in April surprised to the upside, despite falling from 10.1% in March. The reading was above both economist expectations of 8.2% and the 8.4% projection from the Bank of England earlier this month.  While the headline figure fell, core CPI rose to its highest level since 1992, at 6.8% versus the forecast 6.2%, adding to fears inflation is becoming entrenched and forcing markets to increase their terminal interest rate predictions. The 2-year gilt ended the day up by 23.7bps at 4.35%, according to data from MarketWatch, approaching the highs found durin...