The UK’s debt markets have flashed another warning sign, with long-term government borrowing costs surging to levels not seen since the late 1990s.
The move is heaping pressure on Chancellor Rachel Reeves ahead of the autumn budget as investors question the sustainability of the nation’s public finances.
Yields on 30-year gilts jumped to 5.698%, the highest since 1998, pushing up the cost of servicing the government’s already swollen debt pile. The pound fell sharply in response, sliding 1%.
Markets have been uneasy for months over Labour’s ability to manage a £51 billion hole in the public accounts. The latest spike in gilt yields underlines how costly those doubts can be, with every uptick directly raising the interest burden on taxpayers.
Rising borrowing costs are not just happening in the UK. Bond yields have climbed across the US and Europe as investors brace for sticky inflation and heavier issuance. But the UK’s predicament is seen as more acute, with little room to manoeuvre after years of stop-start austerity, pandemic spending and energy subsidies.
Neil Wilson at Saxo Markets said the move was a clear verdict on credibility. “Thirty-year yields at their highest in almost three decades is not a good look for the Labour government,” he said. “It underscores that there is little fiscal or economic credibility left.”
Reeves is under growing pressure to restore confidence before the budget. But with markets demanding discipline, the options are limited: higher taxes, lower spending, or more borrowing at ever higher rates. Talk of Britain slipping towards the kind of fiscal reckoning once associated with emerging markets is no longer being dismissed out of hand.