Skyscrapers and commercial buildings on the skyline of the city of London, England, are illuminated on Tuesday, November 18, 2025. British business leaders have called on Chancellor of the Exchequer Rachel Reeves to ease energy costs and avoid an increase in the tax burden for British businesses as she prepares this year’s budget.
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British government borrowing costs rose to their highest level since the 2008 financial crisis on Friday, with the benchmark 10-year rate above 5%, as investors raced to price in rising inflation risks and the likelihood of interest rate hikes later this year.
The price of British bonds (known as Gilt) has soared amid the escalation of the Iran war. The yield on the benchmark 10-year government bond has risen by about 68 basis points (bp) in the 15 business days since the start of the conflict, while the yield on the two-year bond has risen by about 97 basis points.
Bond prices and yields move in opposite directions.
UK yields on Friday were 10 year government bond It rose about 15 basis points to 5.00%, its highest level since the 2008 financial crisis.
On the other hand, the yield is 2 pension The index rose 19 basis points to about 4.602%, the highest level in more than a year.
British 2nd gold plated
Britain’s bond market has become particularly sensitive to fears of a resurgence in inflation, due in part to the prolonged war between the United States and Iran and the country’s dependence on imported energy. The war and subsequent blockade of the Strait of Hormuz, a key oil shipping route, caused oil and gas prices to soar.
Even before the outbreak of war, the UK had the highest government borrowing costs of the G7 countries and high long-term borrowing costs. 20- and 30 year gold coin It is trading well above the important 5% threshold. Yields on those bonds rose about 9 basis points and 7 basis points, respectively, on Friday.
Nigel Green, chief executive of financial adviser De Vere Group, told CNBC that the market was rapidly unwinding expectations for a Bank of England rate cut.
The central bank’s Monetary Policy Committee announced on Thursday that it had voted “unanimously” to keep the benchmark interest rate unchanged, saying it expects inflation to rise in the short term “as a result of new shocks to the economy.”
Before the war began, the BOE was expected to lower key interest rates. Markets are currently pricing in a near 0% chance that the central bank will cut rates this year, with the majority of traders expecting a rate hike next month, according to LSEG data. Additionally, markets are overwhelmingly pricing in key interest rates of at least 4.25% by the end of the year, implying at least two hikes.
“The trigger is energy, as oil and gas shocks are directly impacting inflation expectations, and gold is reacting exactly as you would expect in this scenario,” DeVere’s Green told CNBC in an email. “This is not a chaotic sale, but a repricing of understandable risk.”
This is not a chaotic sell-off, but an understandable re-pricing of risk.
nigel green
DeVere Group CEO
Green said there was “a political layer” to the movement seen in the gold market.
“Finance Secretary Rachel Reeves has created a fiscal framework that emphasizes stability and reliability, but rising yields quickly translate into higher borrowing costs,” he said. “Of course, this will reduce her room for maneuver, just at a time when pressure is mounting for additional energy and household support.”
Bond markets have largely backed Mr. Reeves’ adherence to so-called “fiscal rules” during his tenure as Treasury secretary, and speculation that he might be removed last year triggered a sell-off in government bonds.
Adding to Friday’s selling pressure, official figures showed the British government borrowed a larger-than-expected 14.3 billion pounds ($1.74 billion) in February.
Mr. Reeves has pledged to raise daily government spending to a level where it can be covered by tax revenue rather than debt, and his rules also require that public debt as a share of economic output must fall by 2029-30.
“From an investment perspective, rising yields are starting to restore value to some parts of the curve,” Green added. “However, volatility will remain high while energy markets dictate the inflation outlook.”
George Godber, fund manager at Polar Capital UK Value Opportunities Fund, told CNBC’s “Squawk Box Europe” on Thursday that his team is avoiding opportunistic reactions to news streams surrounding the conflict.
“It is entirely unclear how long this impact will last…History will teach us that in times like these, it is best to remain calm,” he said. “We’ve done very little.”
