Chancellor Rachel Reeves faced a setback as government borrowing costs surged to their highest level in nearly three decades. The interest rate on 30-year UK gilts rose to 5.70% on Tuesday, reflecting concerns about the economic outlook and global government bond rate hikes.
The escalating long-term borrowing expenses, the most elevated since 1998, are adding pressure on Reeves ahead of the upcoming autumn Budget. The mounting cost of servicing the national debt exceeded £7 billion in July alone.
The UK’s borrowing costs now outpace those of other G7 nations due to substantial debt and persistent inflation. Although similar trends are observed in advanced economies like the US, the rates on 10-year UK gilts climbed to 4.8%, remaining below the peak of 4.93% recorded in January.
Financial experts cautioned that the surge could compel Reeves to implement politically sensitive measures in her first autumn Budget. Market reactions indicate a necessity for credible fiscal policies to reduce the national debt, with potential options including tax hikes, spending cuts, or a combination of both.
The recent spike in gilts follows Prime Minister Keir Starmer’s restructuring of his Downing Street team amid governmental challenges. Darren Jones, the former deputy to Reeves in the Treasury, now serves as the Prime Minister’s chief secretary, while James Murray assumes the role of Treasury chief secretary.
Market analysts and investors express concerns over the Treasury’s adherence to borrowing regulations, as investor confidence wavers amidst the uncertainty surrounding future policy decisions.