UK 30-year bond yields rose to 5.62%, approaching the April spike of 5.66% and the highest levels since 1998. Rising long-term yields have increased the cost of financing government debt to more than 100bn a year, almost 10% of the annual budget. Higher welfare and healthcare costs and rapid ageing are driving up borrowing pressures alongside persistent inflation concerns. Chancellor Rachel Reeves faces a potential autumn budget deficit of between 20bn and 40bn and must find 30bn–50bn through extra tax, reduced spending or higher borrowing to preserve fiscal rules and a 10bn buffer. Bank of England policymaker Catherine Mann warned of inflation persistence requiring high interest rates.
The cost of UK government borrowing has jumped to near a 27-year high, piling pressure on Rachel Reeves to reveal how she will tackle the deficit in the public finances ahead of the autumn budget. The yield, or interest rate, on the UK's 30-year bond rose by eight basis points (0.08 of a percentage point) on Tuesday to 5.62%. That pushed the UK's long-term borrowing costs close to a spike in April of 5.66%, when 30-year bond yields reached their highest since 1998.
UK borrowing costs have risen sharply in recent months, increasing the cost of financing UK government debt to more than 100bn a year almost 10% of the annual budget. Economists have said the UK faces a unique strain on its financial position at a time when higher welfare and healthcare costs and rapid ageing are driving up the level of borrowing across most industrialised nations.
Catherine Mann, a member of the Bank of England's interest rate-setting committee, said UK policymakers were underestimating inflation persistence. She said: There is an increasing tension between inflation persistence and weak growth the trade-off that we currently face in the United Kingdom. She said the Bank needed to maintain high interest rates to bring down inflation and then cut aggressively to revive the economy.
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