Global fiscal concerns and bond vigilantes are driving up long-term borrowing costs, with UK 30-year yields nearing 27-year highs at about 5.646%. Higher yields raise the cost of adding to national debt and reduce the fiscal headroom available to the chancellor ahead of the autumn budget. Analysts estimate a GBP20–25bn fiscal shortfall to be addressed. Market volatility is expected in September. Political sensitivity around tax rises and spending cuts is intensifying, with signs of voter resistance to tax increases and political shifts affecting support for Labour, increasing pressure on policymakers to find adjustments.
The UK's long-term cost of borrowing is on the verge of hitting its highest level since 1998. Yesterday the yield, or interest rate, on Britain's 30-year debt rose as high as 5.646%, just a whisker from the 27-year high of 5.649% set during trading on 9th April. The yield on 30-year UK bonds over the last six months Photograph: LESG That pushes up the cost of adding to Britain's national debt, eating into the headroom available to chancellor Rachel Reeves.
Bond vigilantes punish governments for what they consider to be bad policy choices, by shunning debt auctions or by demanding higher and higher rates of return before buying government bonds. Fiscal concerns have been pushing up long-term borrowing costs globally in recent weeks; September is traditionally a tough month for the bond markets, so the next few weeks could be volatile.
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