FX.co ★ UK Gilt Yields Surge as Iran War Sparks Rate Hike Frenzy

The UK’s 10-year gilt yield has surged above 5%, its highest level since July 2008, as the conflict in the Middle East drives energy prices sharply higher and fuels expectations of more aggressive interest rate increases by the Bank of England. Shorter-dated 2-year yields have climbed above 4.6%, the highest since February 2024, while 30-year yields have risen to 5.6%, a level not seen since September 2025. British government bonds have been among the weakest performers since the US-Israel strikes on Iran, with the UK’s heavy dependence on imported energy heightening its exposure to supply disruptions. Markets are now pricing in four quarter-point BoE rate hikes this year—a dramatic turnaround from pre-conflict expectations of two rate cuts—as policymakers reiterate their commitment to tackling inflation. The sharp rise in borrowing costs is putting pressure on the government’s fiscal plans, prompting Prime Minister Keir Starmer to convene an emergency meeting with BoE Governor Andrew Bailey on Monday to address the worsening situation.