Medium-term borrowing costs for the UK government reached a 19-year high on Thursday, as investors continued to sell off global bonds amid fears of rising inflation. The yield, or interest rate, on 10-year UK government bonds increased by 0.06 percentage points by lunchtime in London, reaching 5.515%. This marks the highest level since July 2007.
Yields on 20- and 30-year UK government bonds, known as gilts, also rose significantly, reaching their highest levels since 1998. These recent movements in government bond markets are attributed to international factors.
The rising borrowing costs are expected to increase pressure on Chancellor John Healey ahead of his first budget on 28 October. Economists believe these costs and a weaker growth outlook may have reduced approximately half of the £24bn buffer against Labour’s fiscal rules, which was established by his predecessor, Rachel Reeves, in March.
Healey is anticipated to raise taxes in the budget to partially restore this cushion and fund policy interventions, including a six-month VAT cut on electricity bills and an energy support package for the poorest households.