UK long-term borrowing costs hit highest since 2008 ahead of October Budget
The yield on 30-year gilts hit its highest level since 1998
UK long-term borrowing expenses have reached their highest point since 2008, just before the October Budget.
The cost for the government to borrow money for the long term has climbed to a 28-year peak, intensifying the pressure on Prime Minister Andy Burnham as his inaugural Budget approaches next month. The yield on a 30-year gilt—essentially a loan to the British government—increased to 5.89%, a level not seen since 1998.
This morning, the effective cost of borrowing for governments globally has continued its ascent, with market interest rates reaching new multi-decade highs. These movements are attributed to concerns about inflation stemming from the ongoing Iran war, competition for long-term borrowing from major tech companies, and worries regarding state borrowing levels.
All these factors will complicate the Budget process for Burnham, who will face Members of Parliament for the first time as prime minister on Tuesday, alongside his Chancellor, John Healey. Elevated borrowing costs will diminish the government's fiscal headroom against its self-imposed rules, thereby limiting the amount Healey can allocate to consumer-friendly initiatives aimed at alleviating the cost of living.
Downing Street affirmed that fiscal discipline is the "bedrock" of Britain's economic stability and national security. However, a spokesperson for the prime minister declined to comment directly on the increase in borrowing costs. The spokesperson stated, "The chancellor and the prime minister are in lockstep that the government will meet the fiscal rules with a buffer against uncertainty and we're cutting the deficit faster than any other G7 economy to the lowest level in six years."
The yield on the benchmark 10-year gilt also rose to its highest rate since June 2008, during the peak of the global financial crisis. Gilt yields move inversely to the value of the bonds, meaning that as yields increase, bond prices fall.
Borrowing costs in the US, Japan, and Europe have reached similar highs in recent days. Global markets reacted particularly after suggestions from the US that its central bank might raise rates. The UK market was closed yesterday for a bank holiday. Japan is also facing pressure to increase its rates.
The Chancellor is currently in the USA attending a meeting of global finance ministers and central bankers. He informed the G20 that the UK had the fastest growth in the G7 in 2026 so far, that productivity was improving, and that the UK was reducing its borrowing at the fastest rate among major economies.
Kathleen Brooks, research director at investment company XTB, told the BBC News Channel, "Of course, this is red lights flashing." She added, "We are used to pockets of volatility, it has been volatile few months." However, she noted that record levels of government debt and a record tax take mean "these are not comfortable times for the new government and the new chancellor." She explained that every time bond yields rise, the UK must pay more in debt interest.