UK Gilt Yields Climb as Oil Fuels Inflation Fears

The UK 10-year gilt yield climbed to 5.45%, approaching a recent 19-year high, as rising oil prices and renewed inflation concerns weighed on sentiment, while investors increasingly focused on Chancellor John Healey’s upcoming Budget. Brent crude rose to $107 a barrel following a deadly attack on Riyadh’s airport in Saudi Arabia, while Ukraine reported continued Russian strikes on its energy infrastructure. Meanwhile, the Institute for Fiscal Studies has warned that Healey must find £35 billion to meet the government’s spending ambitions, fueling speculation over potential tax rises. Investors are now awaiting Wednesday’s US inflation data and this week’s IMF-World Bank meetings, where Bank of England officials are expected to offer further insight into the inflation outlook and interest-rate trajectory. Markets are pricing in four BoE rate hikes over the next 12 months, but this may prove excessive, as several policymakers already consider the current 3.75% rate to be above neutral.