FX.co ★ UK Gilt Yields Hit 18-Year High as Iran Crisis Sparks BoE Hike Bets

The UK’s 10-year gilt yield has climbed back above 5%, its highest level since July 2008, and is on track to finish March more than 75 basis points higher. The move reflects a surge in energy prices driven by the Iran conflict and a sharp repricing of Bank of England policy expectations, with markets now shifting from anticipating two rate cuts to pricing in two or three hikes in 2026.

Geopolitical tensions have intensified after President Trump extended his ultimatum for Iran to reopen the Strait of Hormuz. Mixed and sometimes contradictory messages from both Washington and Tehran have undermined hopes of a swift diplomatic resolution, with investors interpreting the delay as a maneuver aimed at strengthening military preparedness.

Domestically, UK retail sales slipped 0.4% in February (both including and excluding fuel), a marginally better outcome than feared. However, consumer confidence deteriorated sharply in March, dropping to its lowest level in nearly a year as worries about the conflict’s implications for inflation and economic growth weighed heavily on sentiment.