FX.co ★ UK Gilt Yield Hits Five-Month High on Rate Hike Expectations

The yield on the UK 10-year gilt climbed above 4.7%, its highest level since October 9 and roughly 15 basis points higher on the week, as investors ramped up bets that the Bank of England may raise interest rates later this year. Expectations for tighter monetary policy have firmed amid a sharp increase in energy prices tied to escalating tensions involving the United States, Israel, and Iran.

Oil prices surged above $100 per barrel as the conflict showed no signs of easing, stoking fears that rising energy costs could reignite inflationary pressures across Europe. Markets now assign around an 80% probability to a 25-basis-point BOE rate hike by year-end.

At the same time, data from the Office for National Statistics showed the UK economy stagnated in January, undershooting expectations for 0.2% growth. Services output was unchanged and industrial production slipped 0.1%, while GDP expanded just 0.2% in the three months to January, slightly below forecasts.