UK borrowing costs close at highest level since 2008

This led to borrowing costs rising in the US and across the eurozone amid fears that the Middle East conflict will revive inflation around the world.

UK government borrowing costs are rising ahead of the Bank of England’s meeting on Thursday, when rate-setters will decide whether to hold or raise interest rates at 3.75pc.

Worries over price rises have fuelled bets that the central bank’s Monetary Policy Committee will vote to increase interest rates this year.

Markets expect the Bank of England to raise interest rates twice by the end of 2026 to 4.25pc, with increases forecast for July and September.

Mohamed El-Erian, the chief economic adviser at Allianz, said rising gilt yields are “a major concern” because they push up borrowing costs for the entire UK economy, including mortgage costs and corporate loans.

He said: “The UK gilt market is particularly vulnerable to external shocks. We are in a period of higher oil prices, and that is pushing gilt prices higher than elsewhere.”