British government bond prices fell sharply on Monday as oil prices surged amid escalating conflict in the Middle East, raising concerns about a renewed spike in inflation across Europe—particularly in the United Kingdom, one of the region’s most price-sensitive economies.

The two-year UK government bond (gilt) yield, which moves inversely to bond prices, jumped 37 basis points to 4.239% in early trading. The move puts the yield on track for its largest single-day rise since September 2022, when financial markets were rattled by former Prime Minister Liz Truss’s controversial economic plan.

Short-term bonds are especially sensitive to expectations about interest rates and inflation. The sudden surge in yields signals that investors are anticipating higher inflation and potentially tighter monetary policy from the Bank of England if energy costs continue to rise.

The sell-off was triggered by a dramatic spike in global oil prices. Crude prices climbed as much as 25% amid escalating tensions in the Middle East, raising fears of supply disruptions and a fresh wave of energy-driven inflation across global markets.

The impact was not limited to short-term bonds. Five-year and 10-year gilt yields also rose sharply, reflecting broader concerns among investors about inflation risks and the economic outlook in the UK.

Meanwhile, policymakers are exploring ways to stabilize energy markets. A French government source said that finance ministers from the Group of Seven (G7) were scheduled to discuss the possible coordinated release of emergency oil reserves. Such a move, typically organized with the International Energy Agency (IEA), could help ease supply pressures and calm global energy markets.

Investors will be closely watching the outcome of the discussions, as well as further developments in the Middle East conflict, which continues to drive volatility across energy and financial markets worldwide.