UK government bonds tumbled as traders ramped up bets on three Bank of England interest-rate hikes by 2026. The selloff followed comments from BOE officials who said they stand “ready to act” to counter any inflation surge triggered by Middle East conflict. Gilt yields jumped sharply as investors priced in more aggressive monetary tightening ahead.

Traders are now pricing in a much more hawkish path for UK interest rates, with futures markets showing a 70% probability of three quarter-point hikes by the end of 2026. The Bank’s warning about potential inflationary pressures from geopolitical tensions has shaken markets, reversing the recent expectation of rate cuts. BOE officials emphasized their readiness to respond if energy prices spike or supply chains are disrupted.

The selloff in UK bonds marks a dramatic shift from just weeks ago when markets were betting on rate cuts. The BOE’s hawkish stance has strengthened the pound and pushed up borrowing costs across the economy. Investors are now reassessing their portfolios as the prospect of higher rates for longer reshapes market dynamics.