In 2025, UK borrowing costs fall for the first time on a daily basis

LONDON — Borrowing prices in the U.K. fell sharply on Wednesday after lower-than-expected consumer inflation prints were released both at home and in the U.S.

Yield on 10-year UK government bonds was 16 basis points lower at 4.727% at 4pm in London, setting the course for its first daily drop since December 31. A year-to-date surge on worries about the country’s growth prospects and debt burden pushed benchmark yields to their highest level since 2008.

Yield on 2 years old UK bonds, known as gilts, fell 15 basis points to 4.45%. Exit for the long term 30-year bonds fell 15 basis points from its 27-year high.

Investors cheered the issue UK inflation data showing annual growth of 2.5% in December, slightly below the forecast of 2.6% among economists polled by Reuters. Closely watched services inflation eased to 4.4% from 5%, the lowest level since March 2022.

The print bolstered expectations of an interest rate cut by the Bank of England in February and was seen as a much-needed glimmer of good news for Chancellor of the Exchequer Rachel Reeves.

Reeves is struggling with economic stagnation and appears in the risk of violating self-imposed tax rules stipulating that all day-to-day government spending is fully funded by revenues, with the goal of reducing the country’s debt-to-GDP ratio. Monthly UK growth data for November is due on Thursday.

The bond market moved little auction bonds at mid-morning UK time 2034, which showed a strong appetite for UK debt despite recent changes in the bond market, albeit with less demand than last year.

However, profitability accelerated the fall after the release US Consumer Price Indexwhich helped ease concerns about a resurgence of inflation as well led to a sharp decline in US Treasury yields. US CPI was in line with annual forecasts, but core inflation excluding food and energy was slightly below expectations.

US Treasuries also experienced a sell-off in 2025 as traders braced for cautious interest rate cuts by the Federal Reserve this year.

Gabriela Dickens, G7 economist at AXA Investment Managers, warned that the decline in UK headline inflation was likely to be short-lived as pressure from energy prices continued to ease.

“We don’t think this means the UK has an inherent inflation problem, as markets appear to have been concerned in recent months,” Dickens added.

“We see an increasing risk that inflation will miss the target over the medium term and believe that as a result the Bank of England will continue to review price pressures in the near term this year.”