Leading Indicators | Softer signals point to a clearer path for inflation and interest rates, as gilts calm

Softer macro signals cement rate cut expectations  

Today’s labour market data showed UK unemployment rising to 5.2% in the final quarter of 2025, the highest since the pandemic. Combined with slowing wage growth and GDP of just +0.1% last quarter, the data strengthens the case for a BoE rate cut in March as domestic price pressures ease. Markets are now pricing in two rate cuts for 2026, taking the UK base rate to 3.25% by year‑end, broadly in line with our house view. As always, a lower‑rate environment remains supportive for UK CRE, which should help to unlock transaction activity ahead.  

Meanwhile, UK borrowing costs have eased since the November Budget  

UK gilt yields have extended their downward trend since the November budget. The 10‑year yield is now near 4.37%, while the 30-year at 5.17% - back to levels seen at the start of the year. This has occurred against a backdrop of leadership uncertainty within the Labour Party, yet markets have remained calm, and gilt yields have shown minimal volatility compared with past episodes of political disruption.  

Overseas Investors quiet bet on Britain…  

Until around 2010, UK gilts were largely held by insurers and pension funds. The BoE became the dominant holder after the GFC through its QE programme, but ownership has since shifted towards overseas investors and a rise in non‑bank financial institutions. Overseas investors now hold the largest share of UK gilts (33% as of Q3 2025).Whilst these investors tend to adjust allocations more actively, the continued presence of overseas capital reflects the degree of confidence global investors place in the UK - something often overlooked amid the more cautious sentiment found domestically.