The cost of UK government borrowing hit its highest level in nearly three decades on Wednesday, with experts warning the turmoil could push mortgage rates back up for homeowners. Rising bond yields, or "gilts", increase the interest the government must pay on its debt, but they also feed into the "swap rates" that high-street lenders use to price fixed-rate mortgages, meaning the pain could soon be felt directly by borrowers already squeezed by high energy bills and shop prices.

Yields on 30-year gilts climbed above 5.92 per cent, the highest since 1998, while 10-year yields rose above 5.29 per cent, a level not seen since 2008. The volatility, driven partly by fears over inflation and the fallout from Donald Trump's war with Iran, has pushed oil prices to $97 a barrel and left the UK with the highest borrowing costs in the G7. Analysts warned the squeeze could wipe out much of the £24 billion fiscal "headroom" left by the previous chancellor, adding up to £8 billion a year in debt-servicing costs and increasing pressure on Chancellor John Healey to raise taxes at his Budget on 28 October.