FX.co ★ UK Gilt Yields Rise as Energy Prices Lift Rate-Hike Bets

UK 10-year gilt yields climbed to 5.4%, the highest level in nearly 20 years, as oil prices rose and optimism over progress in US-Iran negotiations faded. Tehran said it would not soften its conditions for reopening the Strait of Hormuz after President Trump rejected its proposal, with Trump adding that Iran had “overplayed its hand” and that talks could still resume this week.

In response, markets increased expectations of tighter Bank of England policy, now pricing in an over 80% probability of a rate hike in November. BoE Governor Andrew Bailey warned last week that persistently elevated energy prices would make it harder to keep rates unchanged, while MPC members Sarah Breeden and Clare Lombardelli have also signaled growing support for an increase.

At the same time, Chancellor John Healey is due to address the Labour Party conference ahead of next month’s Budget. Early indications of possible policy measures are emerging, including a potential revival of the Help to Buy scheme aimed at supporting first-time homebuyers.