Chancellor Rachel Reeves faced a setback as government borrowing costs surged to almost three-decade highs. The interest rate on 30-year UK gilts hit 5.70% amid worries about the economic outlook and global government rate increases.
These long-term borrowing expenses are at their peak since 1998, adding pressure on Reeves ahead of the upcoming autumn Budget. The cost of servicing the national debt reached over £7 billion in July alone.
Driven by high inflation and substantial debt, the UK is experiencing the highest borrowing costs among the G7 nations. Despite this, similar trends are observed in other advanced economies like the US.
Meanwhile, the rates on 10-year UK gilts, closely monitored by investors, rose to 4.8%, remaining below the 16-year high recorded in January.
Financial experts caution that the escalating borrowing costs may push Reeves to make challenging decisions in her forthcoming Budget. The market signals emphasize the necessity for credible fiscal policies to reduce Britain’s debt.
The recent surge in gilts follows Prime Minister Keir Starmer’s reorganization of his Downing Street team after a demanding summer for the Government. Reeves’ former Treasury deputy, Darren Jones, has assumed the role of the Prime Minister’s chief secretary, with James Murray taking over as Treasury chief secretary.
Neil Wilson, UK investor strategist at Saxo Markets, noted that the market reaction indicates investor skepticism about the Treasury’s commitment to its stringent borrowing regulations.