UK Gilt Yields Spike Amid Renewed Inflation Fears and Hawkish BoE Stance

UK gilt yields surged to nearly two decades high after investors priced in a more hawkish Bank of England policy stance amid renewed inflation pressures. The UK 10-year gilt yield rose to 5.4%, its highest level since almost 20 years ago. This move comes as BoE Deputy Governor Dave Ramsden echoed recent warnings from Governor Andrew Bailey and other policymakers, stating he would support rate hikes if 'upside pressures' on inflation persist.

Oil prices climbed after President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz and end the conflict in the Middle East. This development contributed to renewed concerns over inflation, which could fuel a wage-price spiral. The BoE's Monetary Policy Committee (MPC) recently voted to hold rates at 3.75%, warning that inflation could peak around 4%.

Markets are now pricing in an 85% probability of a 25bp rate hike in November, with roughly four increases priced in by the middle of next year. Chancellor John Healey emphasized the need for fiscal discipline in a major speech ahead of next month's budget, citing the rising cost of servicing the UK's debt.