That 40-basis-point drop is based on disinflation leading to BOE action, outweighing any nerves caused by political risks, he argued. While the “UK risk premium and political uncertainty will likely remain elevated through upcoming local elections, we think the favourable macro backdrop will drive gilt yields lower,” Cole said in a note to clients. Ongoing political uncertainty ahead of local elections in May, where Starmer’s Labour party is forecast to do badly, is likely to keep this risk premium elevated, Cole said. Political risk is also tempered by tight fiscal constraints on the British government, which Cole said “ultimately limits the degree of policy volatility” in a potential change of administration. That leaves gilts being helped by reduced macro uncertainty and further disinflation, an outlook leading money markets to price nearly two BOE rate cuts in 2026.

Source: The Edge Markets February 16, 2026 11:18 UTC