Gilt yields and sterling may have further to fall

While expectations for interest rates in the UK have already fallen by 40bp by end-2025 since mid-July, our projections for UK CPI inflation to remain below the 2% target for much of 2025 and 2026 suggest to us that the Bank of England will ease monetary policy by even more than investors now anticipate. Accordingly, we still think 10-year Gilt yields will decline by more than 10-year US Treasury yields, from 3.92% now to 3.50% by the end of this year and the pound will weaken from 1.29 now to 1.25 by the end of 2024.