UK Gilt Yields Near 18-Year High on Inflation Fears

The UK’s 10-year gilt yield hit 4.9%, nearing an 18-year high, as conflicting signals from the US and Iran deepened market uncertainty. President Trump claimed Iran seeks a deal "but is afraid to admit it," while Iranian state media dismissed talks, pushing instead for its own guarantees, including potential fees for vessels transiting the Strait of Hormuz. Oil prices surged, with Brent nearing $105/barrel and on track for its largest monthly gain since 1990. On the data front, British Retail Consortium’s consumer confidence plummeted in March, as the conflict raised fears of prolonged inflation. Markets now price in two to three Bank of England rate hikes, with a 70% chance of a move next month and a second fully expected by July.

The UK’s 10-year gilt yield fell to 4.8%, retreating from Monday’s near 18-year peak, as optimism grew over potential de-escalation in the Middle East. Reports suggest Washington presented Tehran with a 15-point peace proposal after a possible one-month ceasefire, though Iran rejected any involvement, declaring, "No one can trust US diplomacy." Meanwhile, UK inflation data for February revealed stable consumer prices at 3%, aligning with expectations, while core CPI rose slightly to 3.2%, exceeding the forecasted 3.1%. The pre-conflict figures, however, failed to sway markets. With oil prices easing, investors now expect only two interest rate increases by year-end, down from three projected earlier in the week. The shift reflects reduced fears that high energy costs will drive inflation.

The UK’s 10-year gilt yield hovered around 4.85%, slightly below Monday’s near 18-year high of 5.1%, as Middle East tensions and disappointing PMI figures shaped market sentiment. President Trump delayed US strikes on Iran, citing "positive talks", a claim Tehran rejected, though reports suggested indirect negotiations. However, an Israeli official dismissed ceasefire prospects, stating Iran shows no willingness to concede, while Israel’s Defense Minister vowed to "continue striking Iran with full force." Adding to pressure, flash PMI data revealed UK business activity at its weakest since September 2025, with the war stalling growth and driving inflation higher. Investors now price in multiple BoE rate hikes for 2026, abandoning pre-war expectations of two cuts, as policymakers focus on taming inflation amid the UK’s vulnerability to energy shocks.