On Tuesday, long-term government borrowing costs in the UK reached the highest levels seen since 1998, reflecting growing concerns about the country’s economic outlook and rising global bond yields. The yield on 30-year government bonds, also referred to as gilts, increased to 5.698%, marking a peak not seen in 27 years. This surge in borrowing costs presents a challenge for Chancellor Rachel Reeves as she prepares for the upcoming Budget, with rising expectations that she may need to raise taxes to strengthen government finances.
Additionally, the value of the pound fell by more than 1% against the dollar during the same time period. The pressure on government bonds has been a global trend for several months, attributed partly to fluctuations in US trade policy. The increase in the yield on UK gilts signifies higher costs for government debt, leading to increased interest payments.
It is important to note that while the Office for Budget Responsibility (OBR) assesses the Chancellor’s adherence to fiscal rules, it primarily focuses on 10-year borrowing costs rather than the 30-year figures. This distinction may influence how the government approaches financial strategy in light of the recent yield increases. This situation raises questions about the potential impact on future government policies and fiscal health.
Source: https://www.bbc.com/news/articles/cy989njnq2wo?at_medium=RSS&at_campaign=rss