Britain’s long-term borrowing costs climbed to their highest level in nearly three decades on Tuesday, underscoring the fiscal challenges facing Chancellor Rachel Reeves as she prepares her first budget later this year.
The yield on 30-year gilts rose to 5.747% in early trading, surpassing Monday’s 5.723% peak and reaching levels not seen since 1998. Yields on 10-year gilts — the benchmark measure for government borrowing — also moved higher, hitting their strongest level since January.
The surge comes as Reeves works on her 26 November budget, with economists estimating she must address a £40 billion shortfall in the public finances. Rising borrowing costs risk further complicating her efforts to balance the need for growth with investor confidence in the government’s fiscal discipline.
Thomas Pugh, chief economist at RSM UK, warned that Britain could be edging toward a “debt trap,” where the cost of servicing government debt outpaces economic growth. “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%. That leaves very little room for error,” he said. He cautioned that any loosening of fiscal rules could push yields even higher.
Despite the sharp rise, analysts played down fears of a repeat of the 1970s debt crisis or the 2022 market turmoil following former Prime Minister Liz Truss’s mini-budget. Pugh noted that the UK still has the second-lowest debt-to-GDP ratio among the G7 nations, providing some reassurance to investors.
The moves in the gilt market also reflect broader pressures across global bond markets. Fred Repton of Neuberger Berman attributed the volatility to record levels of sovereign debt issuance following the US Labour Day holiday. “Yesterday was the largest issuance day on record in Europe,” he said, noting that the UK’s own gilt syndication and linker sale marked its biggest ever sovereign issuance.
Yet demand for British government debt remains strong. David Roberts of Nedgroup Investments said: “The UK sold £14 billion of gilts yesterday, met with record demand of £150 billion. The numbers show extraordinary demand, not the opposite.”
Market strategists highlighted that pressure remains concentrated at the longer end of the curve. “Only when the 10-year yield shoots significantly higher should we really start to worry,” said Chris Beauchamp, chief market analyst at IG.
Neil Wilson of Saxo Markets described the situation as “more of a slow-motion train wreck than the flash-in-the-pan Truss episode,” adding that yields are rising across the board, with US 30-year bonds breaching 5% and European and Japanese yields also trending higher.
For Reeves, the bond market’s message is clear: her autumn budget must demonstrate fiscal credibility through tax and spending choices that reassure investors Britain’s debt remains sustainable. With gilt yields at multi-decade highs, the chancellor’s room for manoeuvre is narrowing rapidly.
