Home Money UK borrowing costs hit highest level in 27 years as Reeves faces hit to bond yields

UK borrowing costs hit highest level in 27 years as Reeves faces hit to bond yields

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Do you have any change? Britain has seen borrowing costs rise to their highest level in 27 years as the Chancellor plans to borrow more while raising taxes.


Borrowing costs hit the highest level in more than a quarter of a century yesterday, meaning Rachel Reeves is about to break her fiscal rules.

In yet another setback for the Chancellor after the Budget, 30-year bond yields rose above 5.25 per cent for the first time since 1998.

The yield is a key measure of how much it costs the Government to borrow and is now higher than it was after Liz Truss’ ill-fated mini-Budget in 2022, when Labor repeatedly claimed the Conservatives “collapsed the economy”.

The reaction of bond markets at the time played a major role in Truss’s downfall, as rising bond yields raised the cost of borrowing for households, businesses and the government.

But borrowing costs are now even higher, having risen steadily since Reeves announced £40bn of tax rises alongside increased spending, borrowing and debt in his first budget in October.

The 30-year bond yield was around 4.35 percent in mid-September, while the 10-year yield has risen from around 3.75 percent to nearly 4.7 percent, more than the high. achieved during the Truss government.

Do you have any change? Britain has seen borrowing costs rise to their highest level in 27 years as the Chancellor plans to borrow more while raising taxes.

Gilts or bonds are packages of debt that the government sells to investors when it needs to raise money.

Last night, experts warned that Reeves is about to break her own fiscal rules – and be forced to make more tax increases – due to rising borrowing costs and slowing growth.

Shadow chancellor Mel Stride said the highest bond yields in 27 years were “further evidence that Labor has driven our economy into a ditch”.

And he added: ‘They downplayed it. They took his life from taxes. They have accumulated loans. They killed growth. Now we are all paying the price with higher inflation, fewer jobs and lower wages.’

Conservative business spokesman Andrew Griffith said the cost “will be borne by businesses and households with higher interest rates”.

The UK is on track to issue almost £300bn of debt this year, second only to Covid.

The borrowing frenzy has driven up yields as investors, wary of the state of public finances, demand a higher rate of return from the government to offset the additional risk.

The Chancellor has faced a wave of criticism since the Budget, as businesses balk at the prospect of higher taxes alongside a rise in the minimum wage.

Business and consumer confidence has also plummeted and the economy – the fastest growing in the G7 when Labor came to power – is now stagnant.

Analysts at Capital Economics warned that Reeves could be forced into another fiscal raid as borrowing costs rise and the economy slows.

A report by the consultancy said rising borrowing costs have removed £8.9bn from the Chancellor’s £9.9bn so-called “free space” to comply with her fiscal rules.

Authors Ruth Gregory and Alex Kerr said in the study that Ms. Reeves “could soon face the unpleasant choice of breaking her tax rules or announcing more tax increases.”

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