The week ahead 02 June 2025 - Bond yields rise on global uncertainty

What to watch out for in the UK economy and property market this week.
Data from Macrobond showed that May saw government bond yields rise for several major advanced economies, including the US and UK. American 10-year Treasury bond yields finished May at 4.41%, up from 4.17% a month earlier. UK 10-year Gilt yields reached 4.66% at the end of May, compared to 4.44% on April 30th. German government bonds rose from 2.45% in April to 2.51% in May. US bond yields are rising due to the uncertainty on trade and a new tax law that is expected to push the Federal deficit higher.
UK gilt yields in part are tracking US bond yields higher. They have also risen on speculation the Chancellor might relax her fiscal rules in the face of slow growth. However, the Treasury did get some useful advice from the International Monetary Fund (IMF), who suggested the Office for Budget Responsibility should in future only carries out an annual assessment of whether the fiscal rules are being met, instead of every six months. This would leave fiscal policy less vulnerable to short-term economic fluctuations. That the IMF has endorsed such a change improves the chances of the financial markets responding positively if the Chancellor pursues that option. The IMF also slightly upgraded its 2025 UK GDP growth forecast from 1.1% to 1.2%, and described growth in Q1 as “very strong”.
Government bond yield volatility has been a theme in 2025, which will have implications for property investment, as the bond market is one of several factors shaping the pricing of debt and real estate yields. However, the resilience of rental growth across the major property sectors in the last year may help soften the impact of this latest increase in bond yields.
This is a big week for the Eurozone economy, with inflation data out tomorrow and the ECB set to announce its policy rate decision on Thursday. Given survey indicators point to a decelerating economy and subdued sentiment, we are forecasting Euro Area inflation to decline, clearing a path for the ECB to cut interest rates by another 25 bps.
On Friday, the closely watched US non-farm payrolls figures are released, which we are predicting will show the new tariffs have caused the American jobs market to decelerate in the face of heightened uncertainty. This might increase political pressure on the Trump administration to settle recent trade disputes.
Investment Focus – UK Offices
RCA has reported investment into UK offices totalled £3.3bn in the first four months of the year. This is 3% ahead of the same period in 2024. With volumes dominated by large portfolio sales in Central London, mid-sized stock continues to trade at below average levels. Despite this, some buyers are stepping forward ahead of anticipated price increases. Indeed, the rate of MSCI capital growth declines across UK offices have slowed to just -0.2% in April ’25 compared to -0.5% 12 months ago. Furthermore, buyers are looking to secure assets forecast to see rental growth, with a steady rise in office rents predicted by Avison Young over the next five years. Central London and Big Nine assets will outperform in our opinion, particularly those with good sustainability credentials and are in close proximity to transport and amenity provision.
This week's figures
TUESDAY 3 JUNE
Euro Area Inflation, y-on-y, May
2.2% previous
2.1% forecast
With the economy sluggish and uncertainty high, we believe Eurozone firms would have been reluctant to hike prices on customers. We are forecasting inflation to decelerate in May.
THURSDAY 5 JUNE
ECB Deposit Rate Decision, June
2.25% previous
2.00% forecast
With inflationary pressures down and concerns growing on global risks, we are forecasting another 25 bps reduction for ECB interest rates.
FRIDAY 6 June
US Non-Farm Payrolls, m-on-m, May
177k previous
140k forecast
Given the level of disruption and uncertainty on trade, we believe many US firms will have cut back on recruitment last month, resulting in slower jobs growth.
