In 2025, the UK’s borrowing costs will run for the first daily reduction

LONDON – UK borrowing costs fell sharply on Wednesday, following the release of lower-than-expected consumer inflation at home and in the US.

The product on 10 year UK government bond It fell 4.727% in London, on course for its first daily decline since Dec. 31. The country’s growth outlook and debt burden have reached alarming levels since the start of the year. It has reached its highest level since 2008.

The product on 2-year UK bonds, known as gilts, fell 15 basis points to 4.45 percent. The longer-dated 30-year bond yield fell 15 basis points from a 27-year high.

Investors cheered the release of UK inflation data showing a 2.5% annual rise in December, shy of economists’ forecast of 2.6% in a Reuters poll. Core inflation eased from 5% to 4.4%, the lowest level since March 2022.

The publication both strengthened expectations for an interest rate cut by the Bank of England in February and was seen as a much-needed glimmer of good news for Finance Minister Rachel Reeves.

Reeves is struggling with an economic slowdown and appears at risk of violating self-imposed fiscal rules that dictate that all day-to-day government spending be covered entirely by revenues as he plans to reduce the nation’s debt-to-GDP ratio. Monthly UK growth data for November is due on Thursday.

The bond market didn’t move much. Tender The UK mid-term 2034 bond has shown strong appetite for UK debt despite a recent bond market move despite lower interest than seen last year.

However, yields accelerated after the release of the US Consumer Price Index, easing fears of a resurgence of inflation and causing US Treasury yields to fall sharply. US headline CPI was in line with annual forecasts, but core inflation, excluding food and energy inflation, was lower than expected.

U.S. Treasuries faced a sell-off in 2025 as traders were wary of an interest rate cut by the Federal Reserve this year.

Gabriela Dickens, G7 economist at AXA Investment Managers, warned that the slowdown in UK inflation will be short-lived as the drag on energy prices eases.

Dickens added: “This means we don’t think the UK has an inflation problem, as markets seem to have been concerned about in recent months.”

“We see a risk that inflation may miss its target over the medium term and as a result we think the Bank of England will continue to see inflationary pressures in the near term.”