UK Gilt Yields Jump as Energy Surge Fuels Inflation Fears

The UK 10-year gilt yield climbed to 4.77%, just shy of last week’s six-month high, as soaring energy costs intensified inflation worries ahead of the Bank of England’s rate decision. A 25% jump in European gas prices, sparked by attacks on Qatar’s LNG facilities, and Brent crude at $117/barrel amplified pressure on the UK economy. While the BoE is expected to hold rates today, markets are pricing in a more hawkish outlook, with 32 basis points of tightening forecast by year-end, equivalent to over a quarter-point hike. Traders now see an over 50% chance of a June rate increase, with a full hike priced in by September. Meanwhile, UK jobs data showed slower wage growth and unemployment holding at 5.2%, both missing expectations.

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.