Key Points

  • The two-year U.K. government bonds yield has fallen by 24 basis points to 4.843% following a drop in the country’s inflation rates.
  • An August rates hike by 50 basis points now seems increasingly unlikely.

U.K. borrowing costs have fallen sharply owing to a drop in inflation rates in the U.K. A July 19 report indicates that the country’s inflation rate stood at 7.9% in June, lower than the expected 8.2%.

U.K. borrowing costs lower as markets digest strong inflation data

The U.K. has started a slight entry into a recovery cycle as June data comes with a notable drop in the inflation rate. The country has been struggling with very high inflation rates compared to other powerful economies like the U.S.

Like the U.S., bank rates in the U.K. are working out well, with its inflation rates falling to 7.9% in June. The U.S. had reported earlier this month that its annual inflation rates had dropped to 3%, which sent global stock markets up.

Recent data on U.K. borrowing costs show a remarkable drop sending hope to the struggling homes in the country and to global supply chains. The yield on the country’s two-year bonds, which is always sensitive to rates decisions, has fallen 27 basis points to 4.808% as investors expect a rates hike to peak 5.75% to 6% this year, lower than the 6.5% expected in June.

As a result, markets now believe it will be less costly to borrow money going forward in the country. However, the country is still not free of interest rate hikes as it still has mixed job market reports owing to the tight labor market and strong wage growth, which calls for more action from the Bank of England.

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