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UK 10-year gilt yields declined to 4.85%, their lowest level since April 20, outperforming most European counterparts as markets reopened after the Bank Holiday and digested fresh developments in the Middle East. Iran reported explosions in the southern port city of Bandar Abbas, while Washington confirmed it had carried out “self-defense” strikes on Iranian missile launch sites and vessels allegedly attempting to lay naval mines. The escalation followed US President Donald Trump’s remark that a memorandum of understanding between the two countries had been “largely negotiated.”
On the domestic front, recent data showed a contraction in UK private sector activity in May, alongside easing inflation and signs of a softer labor market. These releases led investors to pare back expectations for further Bank of England rate hikes. Market attention now turns to upcoming speeches by BoE policymakers for clearer guidance on the policy outlook, as well as to the political fallout for Prime Minister Keir Starmer after Labour’s weaker-than-expected performance in this month’s regional elections.
