FX.co ★ UK Gilt Yields Surge as Bond Selloff and Inflation Risks Intensify

UK sovereign bond yields surged as a renewed global bond selloff intensified. The 10-year gilt yield climbed to 5.5%, its highest level since July 2007, while the 30-year yield reached 6% for the first time since 1998. In September alone, the 10-year yield rose by more than 20 basis points, driven by mounting concerns that higher energy prices will keep inflation elevated and by growing confidence that the AI boom could bolster economic growth—both factors reinforcing expectations that interest rates will remain higher for longer.

Several Bank of England policymakers, including Governor Andrew Bailey and members of the Monetary Policy Committee who backed holding rates steady at last month’s meeting, have signaled increasing willingness to raise rates. They have warned that rising energy costs heighten the risk of inflation staying above the BoE’s target. Market pricing now reflects expectations that the Bank will deliver its first rate hike in three years by November.

The prospect of higher borrowing costs comes at a difficult moment for the government, which is attempting to alleviate cost-of-living pressures ahead of the October 28 budget.