On November 18, 2025, British business leaders urged Chancellor Rachel Reeves to alleviate energy costs and avoid raising taxes as the UK’s borrowing costs hit their highest levels since the 2008 financial crisis. The benchmark 10-year government bond yield surpassed 5%, driven by rising inflation fears linked to the ongoing Iran war, which has impacted energy prices due to the blockade of the Strait of Hormuz.
In recent days, the yield on the 10-year bond rose by 68 basis points, with two-year bonds up by 97 basis points. Previously, the Bank of England expected to cut interest rates, but now markets anticipate rate hikes, with expectations of rates rising to at least 4.25% by year-end.
Financial expert Nigel Green emphasized that this market response reflects a rational repricing of risk amid energy shocks affecting inflation. Reeves aims for fiscal stability, but rising yields risk increasing borrowing costs, complicating her budget strategy amidst growing pressures for energy and household support. The volatility in bond markets is likely to persist, influenced by fluctuating energy prices.
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