The global government bond sell-off resumed on Wednesday, 2 September 2026, leading to an increase in the UK's borrowing costs. The yield on 10-year UK government bonds, known as gilts, jumped to just below 5.3% in early trading. This marks the highest level for the 10-year gilt yield since mid-2008.
Investors across major markets have been selling off bonds in recent days due to concerns about inflation and rising deficits. Global inflation fears have intensified following renewed exchanges of fire between the US and Iran over the weekend, which has pushed up oil prices and increased expectations of central bank interest rate rises.
Higher bond yields are progressively increasing the cost of financing the government's debt. UK analysts have warned that the rise in gilt yields since the start of the Iran conflict could have reduced almost half of Chancellor John Healey's headroom against the government's fiscal rules.
Economists at Deutsche Bank estimate that the £26bn margin created by Rachel Reeves at her spring forecast could decrease to less than £14bn by the time of the 28 October budget. This could require Healey to consider tax increases or spending cuts to rebuild the margin, alongside potential pressure to fund higher defence spending.