Long-term government borrowing costs in the UK reached their highest level since 1998 on Tuesday, adding to the pressure on the chancellor ahead of the Budget.
The interest rate on 30-year government bonds, known as the yield, jumped to 5.698%, its highest level for 27 years, as worries grew about the state of the government’s finances.
There are rising expectation that Chancellor Rachel Reeves will increase taxes in the Budget later this year in order to meet her financial rules.
On the currency markets, the pound also fell more than 1% against the dollar on Tuesday morning.
Government bonds have been under pressure globally for a number of months, in part due to volatile US trade policy.
The yield on 30-year UK government bonds – known as gilts – has been rising for some months, and this adds to the cost of UK government debt due to higher interest payments.
Government forecaster the Office for Budget Responsibility (OBR) takes borrowing costs into account when looking at whether the chancellor is meeting her self-imposed fiscal rules.
When she became chancellor, Reeves set out two rules for government borrowing – that day-to-day spending would be paid for with government revenue, which is mainly taxes, and that debt must be falling as a share of national income by the end of a five-year period.
Part of the reason Reeves is under pressure is that her financial buffer to stick to these rules is a relatively slim £10bn.
