Bailey Presses Fiscal Credibility as Gilts Steady

RoboMacro ResearchAlso todaySee the FI Daily

Bailey Presses Fiscal Credibility as Gilts Steady

46.10 S&P Global Construction0 Lloyds House Price Index0 Lloyds House Price Index-32 RICS House Price Balance

FTSE 10010,448.90-0.09%

GBP/USD1.32+0.21%

UK 10Y Gilt5.37%-5 bp

Brent Crude102.83-1.39%

Market Snapshot

Asset	Level	Change
FTSE 100	10,448.90	-0.09%
FTSE 250	23,943.90	-0.39%
GBP/USD	1.32	+0.21%
GBP/EUR	1.18	-0.10%
GBP/JPY	209.45	+0.28%
Brent Crude	102.83	-1.39%
Gold	4,225.30	+1.64%
UK Nat Gas	3.14	-0.95%
Bitcoin	82,327.01	-1.14%
UK 2Y Gilt	4.63%	+2 bp
UK 10Y Gilt	5.37%	-5 bp

Prior Economic Events

Data	Prior	Cons	Actual
BoE Mann Speech	-	-	-
S&P Global Construction PMI	44.30	45.20	46.10
Lloyds House Price Index Month-over-Month	-0.30	0.20	0
Lloyds House Price Index Year-over-Year	-0.40	-	0
RICS House Price Balance	-28	-30	-32
BoE Credit Conditions Survey	-	-	-
BoE Greene Speech	-	-	-
BoE Gov Bailey Speech	-	-	-

Today's Economic Events

Data	Prior	Cons	Time
No events available

Bailey calls for credible budget policy ahead of the Autumn Budget, warning against a repeat of the 2022 gilt turmoil
10-year gilt yield eased 5 bp to 5.37% while the 2-year rose 2 bp to 4.63%; FTSE 100 slipped 0.09%
Construction PMI improved to 46.1 but housing data stayed soft, with RICS balance at -32

Yesterday's Recap

UK markets ended mixed on Wednesday as investors weighed soft housing data against hawkish-leaning commentary from Bank of England officials. The FTSE 100 closed down 0.09% at 10,448.90, while the mid-cap FTSE 250 underperformed, falling 0.39% to 23,943.90. Sterling firmed 0.21% against the dollar to 1.32 and gained 0.28% versus the yen at 209.45, though it slipped 0.10% against the euro to 1.18.

In fixed income, the 10-year gilt yield eased 5 bp to 5.37%, while the 2-year yield rose 2 bp to 4.63%, flattening the curve modestly as short-end pricing stayed anchored near a 3.73% Bank Rate. Data flow was dominated by housing: the Lloyds House Price Index was flat month-on-month and year-on-year, missing consensus for a 0.2% monthly gain, while the RICS House Price Balance deteriorated to -32 from -28, signaling continued price weakness across the survey panel. Construction activity offered a brighter note, with the S&P Global Construction PMI rising to 46.1 from 44.3, beating the 45.2 consensus though still below the 50 expansion threshold.

On the policy front, Governor Andrew Bailey delivered a speech urging fiscal credibility, and MPC member Catherine Greene also spoke, keeping the Bank firmly in the spotlight ahead of the Budget.

The Day Ahead

Thursday's calendar is quiet on scheduled UK data releases, leaving market attention on secondary flows and policy commentary. With no tier-one prints due, gilt and sterling moves will likely track global risk sentiment and positioning ahead of the Autumn Budget. The BoE Credit Conditions Survey and speeches from Greene and Bailey earlier in the week should continue to reverberate through rate expectations as analysts digest their implications.

Traders will also watch how the 2s10s gilt curve behaves after Wednesday's flattening, with the long end benefiting from fiscal-credibility narratives. Equity desks may see muted volumes absent domestic catalysts, keeping the FTSE 100 tethered to global macro currents. Any follow-up commentary from MPC members could move the short end if it clarifies the path for Bank Rate from the current 3.73% setting.

Page 1

Other Economic Notes

The UK housing market remains in a soft patch, with the RICS balance at -32 pointing to continued price declines and the Lloyds index flat on both monthly and annual bases. Construction, while improving to 46.1, is still contracting, reflecting weak residential and commercial workloads. Labour market slack is evident in the 4.90% unemployment rate, giving the BoE room to ease further if inflation pressures fade.

Inflation at 3.10% year-on-year remains above target, complicating the pace of normalization. Oxford University's estimated £17 billion annual contribution to the UK economy underscores the services sector's role as a growth anchor amid manufacturing and construction weakness.

Global Macro News

Global risk appetite deteriorated midweek as oil prices surged more than 5% on reports the United States is weighing fresh strikes on Iran, pushing Brent to $102.83, down 1.39% on the day but supported by geopolitical premiums. Saudi Arabia is in talks to formalize oil loadings outside the Strait of Hormuz in long-term contracts, while US Central Command confirmed 20 million barrels of crude continue flowing through the strait despite Iranian closure claims. Houthi attacks on Saudi airports killed three people, adding to regional instability.

Equity markets sank alongside the oil spike, pressuring global sentiment. Gold rallied 1.64% to $4,225.30 as investors sought havens, while Bitcoin fell 1.14% to $82,327. On trade, India joined the US and 13 other economies in a pact addressing excess manufacturing capacity, a signal of widening coordination on industrial policy with implications for UK exporters.

↓ p.3

Continuation

Global Macro News (continued)

The UK's openness to Germany joining the Global Combat Air Programme underscores deepening European defense industrial ties.

BoE Watch

Governor Bailey's call for fiscal credibility ahead of the Budget is the week's most consequential signal, explicitly invoking the 2022 Truss-era gilt crisis as a cautionary tale. His emphasis that credible debt commitments are "needed more than ever" suggests the Bank wants fiscal restraint to complement monetary policy, reducing pressure on the long end where 10-year yields sit at 5.37%. MPC member Greene's speech and the quarterly Credit Conditions Survey round out a data-heavy week for Bank watchers, with credit conditions key to gauging transmission of the 3.73% Bank Rate.

The Bank's communication pattern suggests a patient, data-dependent stance: with CPI at 3.10% and unemployment at 4.90%, the committee faces a stagflationary mix that argues against rapid easing. The flattening curve, with the 2-year up 2 bp and the 10-year down 5 bp, hints markets see the long end supported by fiscal discipline hopes even as near-term policy stays on hold. Separately, the Bank confirmed the next series of banknotes will feature the barn owl, bumblebee, puffin, and hedgehog, a reminder of institutional continuity even as its 'autopilot' testing framework draws scrutiny.

For gilt investors, the message is clear: fiscal news now matters as much as inflation data.

UK Macro Daily(Beta Mode)