LONDON - British borrowing costs fell sharply on Wednesday after lower-than-expected consumer inflation data in the U.K. and U.S.

The rate of return is 10-Year UK Government Bond It was down 16 basis points at 4.727% at 4pm in London, which would be the first single-day decline since December 31. The index has surged since the start of the year on concerns about the country's growth prospects and debt burden, with benchmark yields hitting their highest levels since 2008.

The rate of return is 2 years UK bonds, known as gilts, fell 15 basis points to 4.45%. The 30-year long-term bond yield is down 15 basis points from its 27-year high.

Investors cheered after British inflation data released showed that inflation increased at an annual rate of 2.5% in December, slightly lower than the 2.6% forecast by economists polled by Reuters. The closely watched services sector inflation rate fell to 4.4% from 5%, the lowest level since March 2022.

The news both reinforced expectations for a rate cut by the Bank of England in February and was seen as a much-needed glimmer of good news for finance minister Rachel Reeves.

Reeves is grappling with a stagnant economy and appears to be at risk of violating self-imposed fiscal rules that require all day-to-day government spending to be funded entirely by revenue, with the goal of lowering the national debt-to-gross domestic product ratio. . UK monthly economic growth data for November will be released on Thursday.

The auction of the 2034 bonds in mid-morning UK time had little impact on bond markets, which showed strong interest in UK bonds despite recent volatility in bond markets, although demand was lower than last year.

However, after the release of the U.S. Consumer Price Index, the decline in yields accelerated, easing concerns about a pickup in inflation and driving U.S. Treasury yields sharply lower. The headline U.S. consumer price index (CPI) was in line with the annual forecast, but core inflation excluding food and energy was slightly lower than expected.

U.S. Treasuries also experienced a selloff in 2025 as traders braced for cautious interest rate cuts by the Federal Reserve this year.

AXA Investment Managers G7 economist Gabriella Dickens warned that the fall in headline UK inflation could be short-lived as the drag on energy prices continues to ease .

Dickens added: "We do not think this means there is an inherent inflation problem in the UK, as markets appear to have been worried about in recent months."

“We see increasing risks of inflation running below target over the medium term and will therefore continue to focus on near-term price pressures this year.”