UK 10-year gilt yields extended their climb above 4.95%, approaching levels last seen in 2008, as traders intensified bets on further Bank of England rate increases. The move came amid rising crude oil prices—driven by stalled US-Iran negotiations—and growing inflation concerns. Hopes for a diplomatic resolution to the conflict have faded after a two-week ceasefire collapsed and talks failed to resume.
Adding to the upward pressure on yields, UK retail sales rose 0.7% month-on-month in March, beating the consensus forecast of a 0.2% gain. The increase was largely attributed to motorists stocking up on petrol as prices jumped in response to the conflict. Excluding fuel, retail sales were up 0.2%. The stronger-than-expected data has bolstered expectations of imminent monetary tightening, with investors now fully pricing in two 25-basis-point rate hikes in 2026 and assigning a 30% probability to a third increase by the end of the year.
