UK government bonds suffered a brutal sell-off as Middle East conflict stoked inflation fears, sending 10-year gilt yields surging to 4.73%. The yield jumped 0.19 percentage points at one point, marking the biggest weekly increase since the 2022 'mini' Budget. Investors rushed to unwind positions that had bet on Bank of England rate cuts.

Oil prices have jumped over 25% since US and Israeli strikes on Iran, with Brent crude trading above $90 a barrel for the first time in nearly two years. European gas prices have soared more than 60% in a week. The market now prices in just 0.13 percentage points of rate cuts for 2025, down from over 0.5 points last week.

Economists warn the energy price surge could force the Bank of England to keep rates higher or even raise them above 4% from the current 3.75%. UK inflation, previously expected to hit the 2% target in April, may now remain above 2.5% or even accelerate to over 3% later this year.