LIVE MARKETS-UK government bonds to be top performer in 2026, BCA Research says

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UK GOVERNMENT BONDS TO BE TOP PERFORMER IN 2026, BCA RESEARCH SAYS

This year didn't start well for British government bonds -- aka gilts. Along with President Trump and DeepSeek, a gilt market selloff was a big market theme in January.

After that however, they did alright, and on BCA Research's sums, gilts delivered the second best return of developed market government bonds in 2025, when hedged into U.S. dollars, behind only the U.S.

And they think they could grab the top spot in 2026.

BCA sees once stubborn inflation coming down meaningfully, taking away more hawkish Bank of England policymakers' reasons for resisting rate cuts.

They see market pricing of two further BoE rate cuts this cycle as "virtually guaranteed", and on top of that think labour market weakness means the BoE is most likely among developed market central banks to surprise by cutting more than markets expect.

The BoE meets next week, and a 25 basis point rate cut is all but priced in, after Friday's soft GDP data. 0#GBPIRPR

BCA also points to the elevated risk premium that has been priced into British government bonds since 2022's 'mini-budget' disaster.

However, they think last month's budget created sufficient 'fiscal headroom' to alleviate concerns and so should warrant a lower risk premium, again good news for gilts.

(Alun John)

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