Thu, 16 Jan 2025

Borrowing costs fall after inflation surprise

Investors are now betting on an interest rate cut next month from the Bank of England.

* UK government borrowing costs have plummeted, with yields on 10-year gilts dropping below 4.8%.
* The decrease in inflation to 2.5% in December has eased pressure on Chancellor Rachel Reeves and sparked hopes of interest rate cuts by the Bank of England.
* Investors increased bets on an interest rate cut next month and a second cut by the end of the year, following the drop in inflation.
* Inflation news from the US also contributed to the decline in borrowing costs, with core inflation easing unexpectedly to 3.2% in December.
* Yields on government debt fell not only in the UK but also in Germany, and the pound rose to $1.22 in reaction to the news.
* Despite the relief, analysts warn that borrowing costs for the UK remain high, with yields still above multi-decade highs.
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