UK borrowing costs reached their highest point since the global financial crisis, fueled by a bond sell-off that raises concerns about the Labour government's ability to adhere to its fiscal rules. The rising yields impact the government's budget as interest payments climb.
UK 10-year borrowing costs rose to the highest level since the global financial crisis and sterling sank on Wednesday as an intensifying bond sell-off threatened the Labour government’s ability to meet its self-imposed budget rules. The 10-year gilt yield climbed 0.13 percentage points to 4.82 per cent — its highest level since 2008. Yields move inversely to prices. The yield on the 30-year gilt — which on Tuesday rose to its highest level since 1998 — also climbed, touching 5.38 per cent.
UK borrowing costs have risen much faster in the UK so far in 2025 than other big economies, as investors worry about the government’s heavy borrowing needs and the growing threat of stagflation. The Treasury sought to reassure markets by stressing the government’s commitment to its fiscal rules and ensuring stable public finances. “No one should be under any doubt that meeting the fiscal rules is non-negotiable and the government will have an iron grip on the public finances,” it said. Sterling was down 1.1 per cent against the dollar by late afternoon to $1.234, its weakest level since April. In the stock market, the domestically focused FTSE 250 index fell 2 per cent. “It’s a global sell-off, but being compounded in the UK by the toxic combination of a flatlining economy, sticky inflation and a worsening fiscal outlook,” said Andrew Pease, chief investment strategist at Russell Investments. Chancellor Rachel Reeves left herself a slender £9.9bn 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
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