U.K. 10-Year Government Borrowing Costs Hit Highest Since 2008 as Markets Anticipate BOE Rate Hikes

By Miriam Mukuru

Yields on U.K. government bonds rose further Monday, taking the 10-year bond yield above 5%--its highest since 2008 as climbing energy prices prompted investors to anticipate that the Bank of England will raise interest rates.

The surge in oil-and-gas prices due to the Middle East war has revived concerns about inflation and led investors to move rapidly to anticipating several interest-rate rises by the BOE from expecting rate cuts prior to the conflict.

The central bank last week voted unanimously to keep interest rates on hold and signaled a readiness to raise interest rates if necessary.

Adding to that, investors are worried about the poor state of the U.K.'s public finances alongside a weak economy. Yields on U.K. government bonds have risen faster than their U.S. and eurozone counterparts.

The sharp rise in gilt yields "emphasizes the U.K.'s vulnerable position as a high inflation economy with weak public finances," XTB's research director Kathleen Brooks said in a note.

Ten-year U.K. government bonds surged to a high of 5.111% in morning trade, according to LSEG data. U.K. money markets now fully price in three BOE rate rises by September and a high risk of a fourth by year-end, a sharp turn from pricing in two BOE rate cuts prior to the Middle East war.

The U.K. rates market has had "one of the sharpest shocks in recent history," Morgan Stanley rates strategists Fabio Bassanin and Luca Salford said in a note.

The gilt market could start to price in a risk of greater fiscal stimulus to support U.K. households and consequently "higher fiscal risk," potentially sending yields even higher, they said.

Some analysts, however, said that market pricing of BOE rate hikes and the subsequent rise in gilt yields appeared overdone.

"While the [BOE's] monetary policy committee noted the presence of economic slack and that the current energy shock is not comparable to 2022, the main focus was on second‑round effects," Societe Generale strategists said in a note. "We now expect the MPC to remain on hold throughout 2026."

By Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

March 23, 2026 06:50 ET (10:50 GMT)

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