Overview
In 2025, the iBoxx GBP Overall index increased despite bouts of volatility and market repricing, with credit spreads spiking in April amid tariff uncertainty before narrowing back to its long-term average by the end of the year.
Performance varied by maturity, rating and sector, highlighting the impact of index composition. Yields declined across all headline indices except the iBoxx GBP High Yield Overall index. Within corporates, Core Financials’ weight fell while Utilities increased, and the iBoxx GBP Overall index saw a notable rise in new gilt issuance.
The U.K. economy adjusted after earlier inflationary pressures amid global trade and policy uncertainty, with subdued growth, softer demand and a cooling labor market leading to gradual stabilization rather than a strong recovery. The Bank of England (BoE) shifted from a restrictive policy to cautious easing, delivering four 25 bps cuts that lowered rates from 4.75% to 3.75% by December 2025. Inflation remained above target, around 3.4%, with trade frictions, tariffs and supply-chain shifts continuing to shape price dynamics and policy.
Key GBP Indices Performance
The iBoxx GBP Overall maintained an upward trajectory over 2025 after a short dip in January that was followed by a quick recovery, as shown in Exhibit 1. A contributing factor was persistent inflation materially above the BoE target (3.0%), which led to reduced expectations of rapid monetary easing. For the year, the index reported a 5.5% gain, with iBoxx £ Financials being the highest contributor among the headline indices, at 7.6% (see Exhibit 2). All investment grade and high yield indices reported substantial gains, with iBoxx £ Gilts the lowest at 5.0% and iBoxx GBP High Yield Overall the highest at 7.6%, narrowly surpassing iBoxx £ Financials by 1 bp, and reflecting the strong contribution of credit spreads and yield carry in the high yield segment.
Meanwhile, the iBoxx Sterling Inflation-Linked Index gained 1.5% for the one-year period, though it was negative over the three- and five-year periods, signaling that near-term inflation expectations remained elevated despite broader disinflation trends. Over the three-year horizon, the iBoxx GBP High Yield Overall index reported the highest annualized performance, at 10.8%, while the iBoxx £ Gilts recorded the lowest, at 1.5%, highlighting the outperformance of spread-sensitive sectors in a low-rate environment. Over the five-year period, all indices except high yield and financials reported negative performance, reflecting the impact of the 2022 interest rate hikes.
