British bond yields surged by the most in a single day in more than three decades on Friday and the pound slid 3% to a new 37-year low after UK finance minister Kwasi Kwarteng laid out a series of major tax cuts that will be funded by public borrowing.
In a research note, Deutsche Bank's George Saravelos said the required policy response was clear: "A large, inter-meeting rate hike from the Bank of England as soon as next week to regain credibility with the market."
A decision by the BoE to reverse its planned sale of UK government bonds would make matters worse, he said.
He added that a strong signal by the BoE that it was willing to do "whatever it takes" to bring inflation down quickly and move real yields into positive territory would help.
(Reporting by Dhara Ranasinghe; Editing by Tommy Reggiori Wilkes)
