Why are UK gilt investors remaining bearish despite three consecutive inflation misses and slowing wage growth?

Investors are looking beyond recent disinflation to geopolitical and fiscal risks: renewed Middle East conflict has pushed Brent crude above $90 a barrel, threatening higher services inflation and wage pressures, while new Prime Minister Andy Burnham’s expansionary fiscal plans—including potential spending increases and greater flexibility within fiscal rules—raise concerns about fiscal credibility, tax rises, or a renewed gilt crisis, prompting markets to price in 40 basis points of BOE rate hikes by year-end despite June’s 2.6% CPI print and the weakest private-sector wage growth since 2020.

How are rising oil prices and the new UK government affecting gilt market expectations?

Rising oil prices—driven by re-escalated US-Iran tensions and the risk of Strait of Hormuz closure—are expected to feed into future services inflation and wage growth, complicating the Bank of England’s path to its 2% target; simultaneously, Burnham’s fiscal stance, including remarks on ‘flexibility’ within fiscal rules and plans to shield households from living costs, has increased uncertainty, pushing longer-dated gilt yields higher and prompting investors like RBC BlueBay to favor shorter-dated positions insulated from long-term fiscal pressure.

Three Inflation Misses Bring Little Joy to Bearish Gilt Traders

Jul 22, 2026

Despite three inflation misses, bearish gilt traders remain skeptical due to expansionary fiscal policies and oil prices exceeding $90 per barrel amid Middle East conflicts. Rising energy costs threaten to entrench inflation, challenging Bank of England rate cut expectations.

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