FX.co ★ UK 10-Year Gilt Yield Rises from 2-Week Low

The UK's 10-year gilt yield rose above 4.61%, recovering from a two-week low of 4.575% observed on Tuesday. This rebound was partly driven by developments in Japan amid political instability and fiscal concerns. Japanese Prime Minister Ishiba refuted rumors about his potential resignation, while enthusiasm around the US-Japan trade agreement spurred hopes for a similar deal with the EU. In the UK, fresh apprehensions over fiscal stability emerged after statistics revealed a budget deficit of £20.7 billion in June, marking the second-largest deficit for that month since 1993. Debt interest payments soared to £16.4 billion, largely influenced by inflation-linked gilts, setting the second-highest record for June. These figures may pressurize Chancellor Rachel Reeves to contemplate tax hikes in the upcoming autumn budget. Rising yields elevate borrowing expenses, adding to fiscal strain. However, forthcoming economic data might offer some respite, with preliminary PMIs anticipated to exhibit an uptick in manufacturing and robust growth in services, alongside a potential rebound in retail sales thanks to warmer weather.