Market volatility forces UK to pay peak long-term borrowing rates
The UK government paid the highest interest rate on a 30-year bond since the Debt Management Office was established in 1998, as global bond market turmoil pushed up the cost of British borrowing. On Tuesday the Treasury paid 5.82% to borrow £4bn, a stark signal of the fiscal pressure facing chancellor John Healey, who used a speech in Coventry to insist he remains committed to balancing the books despite the deteriorating backdrop.
Markets have been rattled by fears of renewed inflation after the resumption of Middle East conflict pushed Brent crude to around $97 a barrel, alongside investor concern over rising public debt. Analysts expect the Office for Budget Responsibility's forecast ahead of the 28 October budget to wipe out at least half of the £24bn fiscal headroom built up by Healey's predecessor, Rachel Reeves. Separately, Bank of England governor Andrew Bailey told MPs that inflation risks were "on the upside" due to energy prices, though he denied any secret plan to raise interest rates, noting UK mortgage rates had already risen roughly 0.75 percentage points since the conflict began—the largest such increase in the G7 bar Japan. The Bank's monetary policy committee, whose members expressed differing views on inflation risks, meets next week to decide on rates.
In short
- UK paid 5.82% on a 30-year bond, highest since 1998
- Rising yields threaten half of chancellor's £24bn budget headroom
- Bailey warns of upside inflation risks from higher oil prices
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The surge in borrowing costs makes it harder for the government to fund services and investment while keeping debt under control, so sticking to a credible plan to balance the books could reassure investors and limit further pressure on taxpayers. With energy prices raising inflation risks and mortgage rates already climbing, fiscal restraint may also help avoid adding to demand and price pressures.
The case against
A sharp rise in bond yields may reflect global turmoil and inflation fears as much as doubts about UK policy, so treating it as a reason for immediate restraint could impose costs without addressing the main drivers. Cutting spending or raising taxes to protect fiscal headroom could weaken public services and growth; allowing room for targeted investment or support may strengthen the economy and public finances over time.
Explained simply
The government borrows money by selling bonds, which promise investors regular interest and repayment later. A 30-year bond ties the government to interest payments for decades, and the rate investors demand affects how much public borrowing costs.
The Treasury sets out tax and spending plans in the budget, while the independent Office for Budget Responsibility forecasts their effect on the public finances. Its estimate of the government’s room to meet its targets can shape decisions about taxes and spending. The Bank of England sets interest rates to manage inflation; energy prices matter because rises can feed through to the cost of living and borrowing.
Business Economy Government Markets Politics UK World
Read the full article at the source →
Originally published by The Guardian as “UK government pays highest interest rate on 30-year bond since 1998”.