British government bonds rallied on Wednesday, pulling yields down from the multi-year peaks struck earlier this week, as market participants continued to scale back expectations for further policy tightening by the Bank of England. The two-year gilt yield dropped as much as 8 basis points to 4.81%, outperforming both euro-zone debt and US Treasuries in the session.

After inflation figures aligned with economist forecasts, UK bonds opened firmer and extended gains through the morning. August's consumer price index rose 3.1% on an annual basis, marking the highest reading since March and accelerating from the 2.9% pace recorded in the previous month.

Traders responded by trimming their bets on additional rate increases; swaps market pricing now implies roughly a 10% probability of a 25-basis-point hike on Thursday, a sharp drop from the near 30% chance assigned just a day earlier. While money markets continue to fully price in four rate rises by the end of 2027, expectations for a fifth move have faded to approximately 20%, down from almost 50% in the prior session.