UK long-term borrowing costs hit 27-year high as global bond markets wobble

"Thomas Pugh, chief economist at consultancy RSM UK, said Britain risks sliding towards a "debt trap", where the interest rate on government debt exceeds the economy's nominal growth rate. "The UK economy is likely to grow by 3.5-4% a year in cash terms over the next few years. But the average interest rate on government debt is about 3.9%," Pugh warned. "That leaves very little room for error. If Chancellor Reeves loosens the fiscal rules, markets are likely to push gilt yields even higher.""

"Analysts said the rise was part of a broader shift across global markets. Fred Repton of Neuberger Berman pointed to a surge in debt issuance as markets reopened after the US Labour Day holiday. "Yesterday was the largest issuance day on record in Europe," Repton said. "For the UK, the gilt syndication and today's linker sale represent the largest sovereign issuance ever. It has caused turbulence, but one day does not make a trend.""

UK long-term borrowing costs jumped, with 30-year gilt yields reaching 5.747%, the highest level since 1998, and 10-year yields also rising. Rising yields reflect investor concern about the sustainability of public finances as Chancellor Rachel Reeves prepares a 26 November budget with an estimated £40bn fiscal hole. Thomas Pugh of RSM UK warned of a potential "debt trap" if interest rates on government debt exceed nominal growth, noting projected growth of 3.5-4% versus an average debt interest rate around 3.9%. Analysts linked the move to global market shifts and a surge in sovereign issuance.

Read at Business Matters