UK 10-year borrowing costs climbed to their highest level since 2008 on Thursday as investors worry about the government's heavy borrowing needs and the growing threat of stagflation. The pound also dropped to its weakest level since November 2023, caught up in the bond market sell-off. Analysts say the situation is reminiscent of the reaction to Liz Truss's 'mini' Budget in 2022, but many believe it is not as severe.
UK 10-year borrowing costs climbed further on Thursday as a bond market sell-off deepened, hitting the pound and threatening to derail the Labour government’s fiscal plans . The 10-year gilt yield rose as much as 0.12 percentage points to 4.93 per cent in early trading, the highest level since 2008, before easing back to 4.84 per cent. The pound was again swept up in the sell-off, dropping 0.6 per cent against the dollar to $1.229, its weakest since November 2023.
9bn of headroom against her revised fiscal rules in the Budget even after announcing a £40bn tax-raising package that aimed to “wipe the slate clean” on public finances. Increases in government debt yields have since put that budgetary wriggle room under threat. The level of bond yields is an important determinant of the budget headroom given its implications for the government’s interest bill, which exceeds £100bn a year.
Bond Market UK Borrowing Costs Stagflation Pound Sterling Fiscal Plans
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