UK government borrowing costs hit 27-year high as pressure on Reeves mounts
Britain’s long-term borrowing costs have surged to their highest level in 27 years, increasing pressure on Chancellor Rachel Reeves to ease concerns about the nation’s public finances before the autumn budget.
Yields on UK government bonds, known as gilts, rose to 5.698%—the steepest level since 1998—raising the expense of government borrowing from financial markets.
Because gilt yields move inversely to bond prices, the rise reflects a sharp drop in their value.
The pound also weakened as the bond sell-off gathered pace, falling 1% against the US dollar to $1.34 and slipping 0.6% against the euro to €1.15.
The move will add increased pressure on Chancellor Rachel Reeves to hike taxes and slash spending to balance the books.
While the government’s manifesto promises to maintain investment and shield working people from tax hikes, analysis from NIESR suggests up to £40 billion in additional revenue may be needed to restore headroom and maintain investor confidence in the UK’s public finances.
As the Chancellor prepares for the Autumn Budget, the challenge will be finding creative sources of revenue while treading carefully around the impact on living standards
Speaking to the Financial Times, Roger Hallam (Global Head of Rates at Vanguard) said it was “unfeasible” to get the fiscal adjustment desired by investors through tax cuts alone, arguing “some level of spending cuts” were also likely to be required.
“The market is concerned around whether the Labour party [is] able to get their MPs aligned with delivering on the fiscal consolidation that is needed to meet their fiscal rules,” Hallam said.
