FX.co ★ UK Gilt Yields Rise as BoE Turns More Hawkish

UK 10-year gilt yields climbed to 5.4%, their highest level in nearly two decades, as investors weighed a series of Bank of England communications for fresh guidance on the monetary policy outlook. Governor Andrew Bailey warned that persistently elevated energy prices would make it more difficult for the Bank to keep interest rates unchanged. Meanwhile, MPC members Sarah Breeden and Clare Lombardelli indicated they were moving closer to supporting a rate increase, noting that higher energy costs were raising the risk of inflation remaining above target.

These signals come at a sensitive moment for Prime Minister Andy Burnham and Chancellor John Healey, who are under pressure to alleviate the cost-of-living squeeze ahead of the October 28 budget. Market pricing now implies roughly an 80% probability of a BoE rate hike in November, with just over four 25-basis-point increases expected over the coming year.

In the US, investors have similarly raised expectations of additional Federal Reserve rate hikes after a series of hawkish remarks from Fed officials.