Gilt yields - which move inversely to prices - shot up around 8-10 basis points (bps) over the range of maturities in early trade, adding to a much larger jump on Wednesday as markets reeled from stronger-than-expected inflation data.

The moves represent a sharp tightening of financial conditions in Britain and are likely to concern BoE officials, with bond yields nearing levels seen during the "mini-budget" turmoil in financial markets last September and October.

The two-year gilt yield rose on Thursday to its highest level since Oct. 10 at 4.478%, up about 10 bps on the day. So far this week the two-year yield has risen 50 basis points.

Excluding the mini-budget period, the increase would be the biggest over a week since June 2008 when the global financial crisis was building.

Britain's biggest asset manager, Legal & General Investment Management, is staying away from long-term investments in gilts, its chief investment officer said on Thursday.

"The inflation data that we got yesterday in the UK will put a lot of pressure on the Bank of England in getting this balancing act right," Sonja Laum said at a briefing, adding that gilts were subject to higher volatility than U.S. bonds.

Swap rates - a key determinant of mortgage borrowing costs - have also soared this week.

Financial markets fully priced in that the BoE will be forced later to raise its Bank Rate - currently 4.5% - as high as 5.5% late this year, up from a 50% chance on Wednesday.

The gap between 10-year British and German government bond yields has widened this week to above 180 basis points. Excluding the mini-budget period, that difference represented the widest spread since the BoE became operationally independent of the government in 1997.

The sustained narrowing of the spread after 1997 had been viewed by British economic policymakers as a major achievement.

The 10-year gilt yield itself rose to 4.33% on Thursday, its highest level since mid-October and up about 11 bps on the day.

Bond strategists from NatWest, a primary dealer in British government debt, said they now expected the 10-year gilt yield to hit 4.6%.

Saxo Bank said it thought the 10-year gilt yield could breach a key resistance level of 4.59%.

(Additional reporting by David Milliken; Editing by William Schomberg)

By Andy Bruce