British government bond yields have drifted lower since the Bank of England raised interest rates last week. The 10-year gilt yield traded around 5.15% on Monday, near its lowest level since early September, according to market data compiled by Trading Economics, as Brent crude slipped below $97 a barrel. Cheaper oil eases some of the inflation pressure that pushed the central bank into its first rate increase since August 2023.

For investors in Hong Kong, Singapore and Jakarta, the retreat matters because gilts had become one of the highest-yielding major government bond markets. Lower U.K. yields take some pressure off global long-term borrowing costs, and the price of oil now links British rate expectations directly to the import bills of Asian economies.

From a 19-year high to a two-month low

The rally reverses part of a sharp selloff in October. Ahead of the Oct. 28 Budget, the 10-year yield reached 5.44%, its highest in 19 years, Pound Sterling Live reported, while Brent traded near $103 a barrel. The decline since then is roughly 30 basis points.

The Bank of England lifted Bank Rate by a quarter point to 4% from 3.75% on Nov. 5, AFP reported. It had held at 3.75% since December. Gilts pared earlier losses on the day, and the 10-year yield ended just below 5.15%, Trading Economics data showed. On Nov. 6 it fell toward 5.1%, the lowest since late August, before edging back to about 5.15% by Monday.

The hike had been well signaled. In September the Monetary Policy Committee voted 6-3 to hold, with Huw Pill, Megan Greene and Catherine Mann voting for an increase, Reuters reported at the time. Governor Andrew Bailey said then that the longer energy price volatility persisted, the more likely it was that the bank would need to raise rates. By late October, markets priced roughly a 90% chance of a November move, according to Pound Sterling Live.

Oil sets the pace for further hikes

What happens next depends largely on energy. The bank's central forecast has inflation, now 3.5%, peaking at 4.9% in the second quarter of 2027, AFP reported. In an adverse case where oil rises well above $100 a barrel because of the Middle East conflict, inflation could reach 6.2% in the third quarter of 2027.

Bailey tried to cool talk of a long tightening cycle. He said the increase "shouldn't be seen as the first in an inevitable long sequence of hikes," according to AFP, while adding that it was unlikely to be the last unless the conflict in the Middle East is resolved.

The committee leaned hawkish. Five members, a majority, said further tightening would likely be appropriate, according to an analysis by economists Thomas Pugh and Jack Wellard at consultancy RSM UK. They expect another quarter-point rise in February 2027, unless energy prices fall sharply and stay down over the winter, followed by a hold for the rest of the year. A sustained drop in crude would weaken that case and tend to support gilts; a renewed spike would do the opposite.

Households are still exposed even with oil lower. RSM expects energy bills to rise by around 25% from the January price cap set by regulator Ofgem, despite the recent decline in wholesale prices.

What it means for Asian portfolios

The pound is the main channel for Asian holders of British assets. Capital Times reported that sterling held near $1.35 after the decision, little changed on the day, because the hike had been priced in. If gilt yields keep falling while U.S. and euro zone rates stay put, the rate advantage that has supported sterling narrows. AFP noted that both the Federal Reserve and the European Central Bank had already raised rates since the conflict began.

For bond investors, gilts near 5.1% still pay more than many regional sovereign markets, and October's selloff showed how quickly fiscal worries can push yields up. The budget headroom in Chancellor John Healey's first Budget remains a key input for how much extra yield investors demand to hold long-dated British debt.

The growth picture gives the bank some room. It raised its forecasts to 1.6% for this year and 1.3% for next, up from 1.1% for both years in July, citing business investment partly tied to demand for artificial intelligence, AFP reported. Stronger growth makes further tightening easier to justify.

Asian oil importers face the same variable from the other side. Lower crude trims import bills across the region and lowers the odds of more U.K. tightening, while a fresh rise would lift inflation expectations in London and in Asian capitals at once. The Monetary Policy Committee's next decision is in December; RSM's forecast puts the next move in February.