Long-term government borrowing costs have risen to a 28-year high, putting further pressure on Prime Minister Andy Burnham ahead of his first Budget next month.
The yield on a 30-year gilt — a loan to the British government — rose to 5.89%, the highest since 1998.
The effective cost of borrowing for governments across the globe has continued to rise this morning with new multi-decade highs in market interest rates.
The moves reflect concerns about inflation arising from the ongoing Iran war, competition from major tech firms for long-term borrowing, and concerns about state borrowing levels.
All of those factors will make the Budget process trickier for Burnham, who on Tuesday addressed MPs for the first time as prime minister, and his Chancellor John Healey.
Burnham told the House of Commons his government’s “bedrock” as it seeks to tackle the cost-of-living crisis will be “fiscal responsibility”.
Higher borrowing costs will reduce the amount of headroom the government has against its self-imposed fiscal rules, limiting the amount Healey can spend on consumer-friendly measures to ease the cost of living.
But a spokesperson for the prime minister refused to comment directly on the rise in borrowing costs.
“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 spokesperson said.
The yield on the benchmark 10-year gilt rose to its highest rate since June 2008, at the height of the global financial crisis.
Gilt yields move counter to the value of the bonds, meaning their prices fall when yields rise.
Borrowing costs in the US, Japan and Europe have hit similar highs in recent days.
The chancellor has previously said he will stick to a set of fiscal rules imposed by his predecessor Rachel Reeves that restrict borrowing. These rules are designed to help markets have clarity about the path of borrowing.
The more that is forecast to be spent on interest costs, the more likely that there will be a squeeze on spending or some form of tax rise to meet these rules.
The moves in interest rates could already wipe out half of the room for manoeuvre to meet these rules forecast at the last set of official numbers last March.
On top of that, higher government rates can feed through to higher business and household borrowing costs, and so weigh on the economy.
The tax and spend balance in act was already tricky due to extra spending pressures on defence and the cost of living. These moves make these balancing acts trickier still.
Global markets reacted in particular after suggestions in the US that its central bank could raise rates. The UK market was closed for the bank holiday yesterday. Japan is also facing pressure to raise rates.
The Chancellor is in the USA attending a meeting of global finance ministers and central bankers. He told 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 cutting its borrowing at the fastest rate of the major economies.
