UK 2-Year Gilt Yields Rise on May 12 Amid Political Tension and High Oil Prices

According to ING strategists, UK 2-year gilt yields rose on May 12, driven by political tension and elevated oil prices that have reduced expectations for Bank of England rate cuts in coming years. The strategists noted that if Prime Minister Keir Starmer steps down—following Labour's poor performance in last week's local elections—his successor could expand fiscal spending and increase government debt, further pushing up rate expectations.

Money markets are currently pricing in two to three interest rate hikes in 2026 as inflation remains elevated.