UK Gilt Yields Near Six-Month High on Renewed Inflation Concerns

The yield on the UK’s 10-year gilt climbed toward 4.7%, approaching last week’s six-month peak of 4.78%, as soaring energy prices intensified inflation concerns. Oil prices extended their rally on Wednesday after Iran’s Revolutionary Guard issued evacuation warnings for oil facilities in Saudi Arabia, the UAE, and Qatar, following Israel’s strikes on Iran’s Asaluyeh refinery and the South Pars gas field. The sharp rise in energy costs has led traders to price in a nearly 50% probability of a Bank of England interest rate hike by November, a dramatic shift from early March, when markets had anticipated two rate cuts this year. At Thursday’s meeting, analysts will scrutinize the Monetary Policy Committee’s vote split, with a 7-2 or 6-3 decision to hold rates viewed as the most likely outcome.

The yield on the UK’s 10-year gilt fell below 4.65%, pulling back from last week’s six-month high of 4.78%, as markets adopted a wait-and-see approach ahead of the Bank of England’s upcoming policy decision, while surging energy prices continue to amplify inflation concerns. On Tuesday, US President Donald Trump indicated that military operations in Iran would continue beyond this week, while Israeli officials cautioned on Monday that the conflict could persist for “several more long weeks.” The resulting spike in energy prices has prompted traders to price in a nearly 50% chance of a Bank of England interest rate hike in November, a stark reversal from early March, when markets were pricing in two rate cuts for the year. At this week’s meeting, analysts will closely watch the vote split among policymakers, with a 7-2 or 6-3 decision to hold rates seen as the most likely outcome.

The yield on the UK 10-year gilt hovered just below 4.7%, after hitting its highest level since early September on Friday, as ongoing Middle East tensions fueled concerns over the Bank of England’s policy outlook ahead of this week’s decision. Israeli officials warned the conflict could continue for “several more long weeks,” while US President Donald Trump said Iran is “not ready” to reach a deal. Rising energy prices have led traders to revise their interest rate expectations, with markets now pricing in around 23 basis points of a hike for December, just below a quarter-point increase, after fully pricing in a hike last week. This represents a notable turnaround from early March, when investors anticipated two rate cuts this year. For the upcoming March meeting, focus will be on the vote split, with a 7-2 or 6-3 decision to hold rates considered the most likely outcome.