![\"Liz](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/03\/GettyImages-2175634995.jpg\")
\t\t(Photo by Christopher Furlong\/Getty Images)\t<\/p>\n\t\t\tFriday 06 March 2026 3:52 pm
\n\t\t\t\t\t\u00a0|\u00a0\u00a0Updated:\u00a0<\/p>\n
\t\t\tFriday 06 March 2026 5:13 pm\n\t<\/p>\n
\t\t(Photo by Christopher Furlong\/Getty Images)\t<\/p>\n
The government\u2019s borrowing costs rose dramatically on Friday and were on track to have their worst week since Liz Truss\u2019s fateful mini-Budget, amid fears the escalating war in the Middle East will unleash another bout of high inflation.<\/p>\n
The interest rate on UK bonds \u2013 known as gilts \u2013 rose across the board, to reach the highest they have been since September, as traders aggressively wrote off the chance of any interest rate cuts happening for the rest of 2026.<\/p>\n
The yield on the 10-year gilt, which is the benchmark for a country\u2019s long-term capacity to borrow, climbed as high as 4.62 per cent, putting it on track for an over 50 basis point rise over the week as markets digested the escalating regional war in the Middle East.<\/p>\n
Two-year bond yields that track the interest rate path more closely, also rose by some 16 basis points \u2013 or 0.16 percentage points \u2013 as the cost of government borrowing rose across the curve.<\/p>\n
The price of government bonds \u2013 which move inversely to their yield \u2013 had been falling consistently since the start of February, after a series of soft inflation and economic data releases led traders to bet that the Bank of England would have to cut rates faster than had previously been expected.<\/p>\n
\t\tWar in Iran sparks fresh inflation fears<\/p>\n
But America\u2019s strike on Iran on Saturday, and Iran\u2019s aggressive response, have rekindled inflation fears, with some traders now pricing in an interest rate hike from the Bank\u2019s Monetary Policy Committee when it meets later this month.<\/p>\n
\u201cThe rapid repricing of monetary policy expectations, and the UK\u2019s history of high energy prices means that UK gilts\u00a0are particularly vulnerable to this energy price spike,\u201d said Kathleen Brooks, research director at XTB. \u201cThe selloff in\u00a0gilts\u00a0has been worse than the selloff in UK stocks this week. The risk is that equity traders align with bond traders, which could spell trouble for stocks if this conflict continues. <\/p>\n
Price rise fears were largely driven by the growing consensus that constrained oil and gas supplies will trigger an energy price shock similar to the one Europe suffered at the onset of Russia\u2019s invasion with Ukraine. <\/p>\n
In the past five days, the price of brent crude oil \u2013 the international benchmark \u2013 has risen by some 26 per cent since , while natural gas is up over 60 per cent after a key Qatar processing plant shuttered operations.<\/p>\n
Energy prices tend to have an outsized effect on the overall inflation picture \u2013 and thus the government\u2019s borrowing costs \u2013 because as well as causing higher household bills, they also bleed through into the input costs of businesses, some of which is passed onto consumers. <\/p>\n
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