UK 10-Year Gilt Yield Remains Close to Multi-Year High

The UK’s 10-year gilt yield hovered around 4.9%, near its highest since July 2008, and was set to close March up over 70 basis points. The escalating Iran conflict continued to push energy prices higher, triggering a sharp reversal in Bank of England policy expectations. Investors remained focused on the economic risks of the prolonged Middle East crisis, with reports of US troop preparations for a potential ground operation overshadowing Washington’s claims of diplomatic progress. Markets now price in at least two BoE rate hikes this year, with a possible third, abandoning earlier forecasts of two cuts. However, BoE policymaker Alan Taylor tempered hawkish bets, stating he saw a "high bar" for raising rates and preferred to wait for greater clarity on the war’s economic impact before adjusting borrowing costs.

The UK’s 10-year gilt yield surged back above 5%, its highest since July 2008, and is poised to end March up over 75 basis points, as the Iran conflict drives energy prices higher and prompts a sharp shift in Bank of England expectations from two anticipated cuts to two or three hikes in 2026. Geopolitical tensions escalated after President Trump extended his ultimatum for Iran to reopen the Strait of Hormuz, while conflicting signals from Washington and Tehran fueled skepticism about a quick diplomatic breakthrough, with markets viewing the delay as a tactic to bolster military readiness. On the domestic front, UK retail sales dipped 0.4% in February (both including and excluding fuel), slightly better than feared, but consumer confidence plunged to a near one-year low in March, as concerns over the conflict’s impact on inflation and growth weighed on sentiment.

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.