UK borrowing costs have soared to their highest level of the century as investors bet on as many as five interest rate hikes in little more than a year to tame rampant inflation.

As experts warned energy bills could rise by a punishing 25 per cent in January, the yield on 30-year gilts – a key measure of how much it costs the Government to borrow – jumped above 5.95 per cent to levels not seen since 1998.

The latest spike came as investors bet the Bank of England is set to raise interest rates five times by November 2027 – taking them from 3.75 per cent today to 5 per cent.

There is a 35 per cent chance that the first move will come on Thursday this week, according to bets on financial markets.

That would follow inflation figures Wednesday that could show the consumer prices index rose above 3 per cent in August – well ahead of the 2 per cent target.

If the Bank does decide to hold off on this occasion, there is an 80 per cent chance of a hike following the next meeting of the monetary policy committee on November 5.

That would spell misery for househ’kds with mortgages and other borrowers including businesses just days after Chancellor John Healey's first Budget on October 28.

It means there is a good chance Britons will go into Christmas facing higher taxes and borrowing costs as well as sharp increases in everything from fuel and energy bills to food as conflict in the Middle East drives up oil and gas prices.

Oil came close to $110 a barre this week as the war fuels fears over supplies.

That has pushed up prices at the petrol pumps to a four-year high – hitting motorists in the pocket.

Energy bills look set to follow suit with forecasts by Bloomberg Economics warning of a £427 or 25 per cent rise in January to £2,150 a year for a typical household.

That could push inflation above 4 per cent next year – ramping up pressure on the Bank of England to hike rates.

Anthony Brinkman, high yield portfolio manager at Principal Asset Management, said: ‘The recent gilt market movements seem to be intent on showing central banks they are out of time – the market is expecting action. UK government bonds are selling off.

‘The UK is especially vulnerable because of the combination of oil prices at $100–110 a barrel and concerns about the credibility of the public finances ahead of the October 28 Budget.

‘Thursday is essential – if the Bank of England doesn’t hike and fails to communicate its long-term trajectory in a convincing manner, even 2-year yields at 5 per cent may begin to look a little rich.’

The two-year gilt yield rose above 4.95 per cent on Tuesday, the highest level since 2023, while the ten-year yield was at a 19-year high above 5.4 per cent.

It is not just a British problem - though yields here are higher than anywhere else in the G7 and much of the developed world.

The yield on ten-year US Treasuries – as they are known – is also at the highest level since 2007 just above 5pc and the US Federal Reserve is expected to raise rates on Wednesday.

Meanwhile, Japan's ten-year bond yield hit a three-decade high above 3 per cent. In Germany, the ten-year benchmark yield sat near its highest since 2009 at 3.55 per cent, while French ten-year yields were hovering near an 18-year high above 4.5 per cent.

Susannah Streeter, chief investment strategist at Wealth Club, said: ‘There’s no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates.

‘The Middle East conflict has become more entrenched, with Iran clearly in this fight for the long haul, and it’s led to fresh worries that higher energy costs will become embedded in economies, leaving companies with little choice but to hike prices on a vast range of goods.

‘That’ll be concentrating the minds of the raft of central bankers meeting this week on both sides of the Atlantic to decide on rate hikes. The bond markets are reflecting concerns that the only way is up, and the worries that the ascent could be a steep one.’