Investing.com – UK government bonds, known as gilts, rallied on Wednesday, after UK inflation was reported below expectations for December, giving Chancellor Rachel Reeves a break and possibly offering the Bank of England to opportunity to cut interest at the next meeting.

At 07:15 ET (12:15 GMT), the yield on the UK’s benchmark 10-year government bond fell 4 basis points to 4.85%, having risen to a 16-year high earlier this week. .

Yields and prices fluctuate with government bonds.

The annual fell to 2.5% in December, from 2.6% the previous month, while the core CPI, which excludes volatile energy and food prices, fell to 3.2% annually, from 3.5% the previous month. .

“The weaker-than-expected core print was driven by a downside surprise in services inflation,” UBS analysts said, adding to a set of soft data that strengthened our call for a 25bp rate cut. at the next meeting on 6 February.

Goldman Sachs agreed, saying that “the decline in underlying services inflation measures reinforces our view that the Committee is likely to cut the Bank Rate in February.”

These numbers come as something of a relief for the Bank of England, because anything higher would give the perfect excuse for speculators to continue selling UK government debt, where the income rose amid concerns about the fiscal health of Britain under the leadership of Chancellor Rachel Reeves. .

British government bond yields have risen steadily since September, reflecting reduced expectations of a rate cut by the Bank of England, more borrowing in the new government’s October 30 budget and more US Treasury yields are high as President-elect Donald Trump is expected to maintain a loose fiscal policy and raise tariffs.

These higher yields are likely to cause headaches for Reeves, as the increased cost of servicing the country’s debt could mean he exceeds his medium-term borrowing targets if he updated forecasts on March 26.