Leading Indicators | Lending resilience signals momentum, despite a shifting landscape

French yield rise narrows gap with UK gilts  

The spread between UK and French 10-year yields may narrow in the near term. UK 10-year gilt yields remain elevated at around 4.75%, while French 10-year government bond yields have edged higher to roughly 3.59% amid rising political uncertainty. The UK’s comparatively stable political backdrop provides some support for gilts relative to peers, helping to stabilise spreads against a more uncertain European backdrop.

Refinancing and investment activity drive lending recovery

Net lending to UK commercial property rose in August, reaching £2.5bn, the strongest monthly figure since May 2020, reinforcing the sector’s positive momentum. This lifted the 3-month total to £6.3bn, the highest level in 15 years. Growth was driven by strong lending against standing investments (£2.5bn), while development lending remained slightly negative at    -£0.1bn. Refinancing remains a key driver of activity, reflecting solid lender appetite and a supportive financing backdrop as investment demand gradually recovers.

Could softer PMIs reinforce the case for further policy easing?

The UK services PMI fell to 50.8 in September, from 54.2 in the previous month, still indicating healthy expansion, but at a slower pace than in recent months. Meanwhile the UK manufacturing PMI fell to 46.2, a five-month low. This easing in PMIs suggests softening demand, slower price growth, and cooling labour market dynamics, which could pave the way for a more dovish shift in the Bank of England’s policy stance. Markets currently expect the bank rate to remain on hold through the end of the year, with a few additional cuts anticipated in 2026.