Yields on UK gilts end week-long fall after touching 3-month lows

LONDON, Oct 17 (Reuters) - British government borrowing costs were on course to close up for the first time in a week on Friday, reversing course after yields on most maturities touched their lowest in more than three months earlier in the session.

Gilt yields dropped by between three and four basis points as the bond market opened with those for bonds of five to 30 years in maturity sinking to their lowest since early July.

But at 1340 GMT, yields were up three to four bps after U.S. President Donald Trump said he was still on course to meet Chinese President Xi Jinping in two weeks' time.

Worries about an escalation of U.S.-China trade ties, along with signs of credit stress in the U.S. banking system and bets on more rate cuts by the Federal Reserve, pushed down government debt yields around the world in recent days.

British borrowing costs also dipped after data on Tuesday showed a slowing of pay growth and a rise in unemployment which Bank of England Governor Andrew Bailey said backed up his view that price pressures in Britain were easing.

However, on Friday, BoE Chief Economist Huw Pill said rates will probably need to be cut more slowly than they have been to date due to stubborn inflation pressures still in the economy.

Investors currently expect two quarter-point rate cuts by the BoE by the end of 2026.

Lower borrowing costs could help British finance minister Rachel Reeves as she prepares her November 26 budget if they are factored in to the official forecasts produced by the country's fiscal watchdog.

Reeves, who is expected to raise taxes next month, said on Thursday she wanted to give herself a bigger margin of error but she was hemmed in by volatile global markets which have pushed up UK borrowing costs.