10th March 2026
UK bond markets are selling off sharply today, with 10‑year gilt yields jumping to around 4.56%, the biggest rise in Europe.
This surge is being driven by the Middle East war and soaring oil and gas prices and it is already pushing up inflation expectations and making Bank of England rate cuts far less likely.
Higher gilt yields = higher borrowing costs = stickier inflation = interest rates staying higher for longer.
What's Happening in the UK Bond Market Today
Gilt yields are spiking
The 10‑year gilt yield has risen to 4.56%, up from 4.23% just a week ago.
This is the largest increase in Europe, meaning the UK is being hit harder than other countries.
Why this is happening
The Middle East war has triggered a global bond sell‑off.
Investors are demanding higher returns because they expect higher inflation from rising oil and gas prices.
The UK is seen as especially vulnerable due to its weak fiscal position and reliance on imported energy.
Market reaction
Traders have slashed expectations of a Bank of England rate cut:
A week ago: 86% chance of a cut in March
Today: less than 5% chance
April cut probability has also collapsed to below 50%
How This Affects UK Inflation
Oil & gas prices → higher inflation
The Middle East conflict has pushed energy prices sharply higher.
Analysts warn this could trigger a new wave of inflation in the UK.
Bond yields rising = inflation expectations rising
When gilt yields rise, it usually means:
Investors expect higher future inflation
Government borrowing becomes more expensive
Businesses face higher financing costs
Mortgage rates drift upward
This all feeds into higher prices for consumers.
OBR warning
The Office for Budget Responsibility says the war could cause a "significant hit" to the UK economy and push inflation back up.
How This Affects UK Interest Rates
Rate cuts now unlikely
Markets now expect fewer rate cuts in 2026.
Traders now price in just one cut this year instead of two.
Why?
The Bank of England cannot cut rates if inflation is rising again.
Higher gilt yields signal that the market expects rates to stay higher for longer.
Mortgage impact
Two‑year swap rates jumped from 3.33% → 3.59%
Five‑year swaps rose to 3.71%
These swaps directly influence fixed‑rate mortgages.
What This Means for Households (Including Caithness)
Higher mortgage rates
Mortgage rates have already risen to around 6% nationally.
Even small increases deter buyers and raise monthly payments.
Higher energy bills
Rising oil and gas prices feed directly into heating oil, LPG, and electricity — especially painful in Caithness, where many homes are off‑grid.
Higher food and transport costs
Diesel and transport costs rise with oil, pushing up food prices — again worse in remote areas like Caithness.