UK Gilt Yields Hit Two-Month High as Oil Surges

The UK 10-year gilt yield rose above 5%, the highest in two months, as elevated oil prices kept inflation concerns alive and reinforced expectations that the Bank of England will maintain higher interest rates for longer. Investors also assessed the political transition after Andy Burnham officially became the UK's prime minister on Monday, accepting King Charles III's invitation to form a government. Burnham, who succeeded Keir Starmer unopposed, is the UK's seventh prime minister in the past decade and the second since Labour returned to power in 2024. He reaffirmed his commitment to the government's fiscal rules while signalling he is considering raising the income tax personal allowance, which has been frozen for years. Markets are now focused on his choice of chancellor, with reports that Shabana Mahmood is the leading candidate.

The UK 10-year gilt yield rose to 5%, near a two-month high, as oil remained elevated after the US and Iran exchanged retaliatory strikes, keeping inflation concerns elevated and reinforcing expectations that the Bank of England will maintain a tighter policy stance for longer. Meanwhile, Andy Burnham officially became the UK’s Prime Minister on Monday after accepting King Charles III’s invitation to form a government. Burnham, who stood unopposed in the Labour leadership contest following Keir Starmer’s resignation, is the UK’s seventh prime minister in the past decade and the second since Labour returned to power in 2024. Markets are now focused on Burnham’s choice of Chancellor. Reports that Shabana Mahmood is the leading candidate have reassured investors, easing concerns that the new government could pursue a more expansionary fiscal agenda.

The UK 10-year gilt yield climbed to 5%, its highest level since May 19, as surging oil prices fueled inflation concerns and reinforced expectations that the Bank of England will keep interest rates higher for longer. Brent crude rose above $90 a barrel after the US and Iran exchanged a series of retaliatory strikes, raising fears of prolonged supply disruptions. Meanwhile, markets are closely watching Andy Burnham as he takes office as Prime Minister today. Investor attention is focused on his choice of Chancellor, with reports that Shabana Mahmood is the leading candidate helping to reassure markets and ease concerns over a more expansionary fiscal policy.