Highest gilt yields since 1998
The UK’s long-term borrowing costs have climbed to their highest level in more than 25 years, intensifying pressure on chancellor Rachel Reeves ahead of her first Autumn Budget.
On Tuesday, the yield on 30-year gilts briefly touched 5.70%, the highest since 1998, before easing slightly to 5.68%.
Bond yields rise as prices fall, and the latest move highlights investors’ mounting concerns over the state of Britain’s public finances, persistent inflation, and global shifts in debt markets.
Sterling under strain
The gilt sell-off spilled into currency markets, sending the pound down 0.9% against the dollar and 0.4% against the euro. Analysts warned that sterling has become highly sensitive to shifts in long-dated bond yields, with ING’s Francesco Pesole calling the decline “a clear signal of how jittery the sterling market is.”
Ten-year gilt yields, closely watched as a benchmark for long-term borrowing costs, also rose to 4.79%, edging closer to January’s 16-year high of 4.93%.
Global pressures add weight
The UK’s bond market stress is part of a wider trend, with yields rising across major economies. German 10-year Bunds added 0.03 percentage points, while US Treasuries gained 0.05 percentage points.
In the US, concerns about the federal debt pile and President Donald Trump’s public criticism of the Federal Reserve have unsettled markets. In Germany, long-term yields are at their highest since 2011 following a sharp rise in defence and infrastructure spending.
Reeves’ fiscal test
Reeves faces a narrowing margin for manoeuvre. Higher yields increase the cost of servicing Britain’s already large debt burden, reducing the “headroom” available under the government’s fiscal rules.
Investors are waiting to see how the chancellor balances the need for fiscal tightening with Labour’s promises to boost growth. Setbacks on welfare reforms and concerns over spending cuts have heightened anxiety.
Political backdrop
The market turbulence comes as Prime Minister Keir Starmer attempts to steady his government’s standing. A reshuffle in Downing Street was billed as a step towards firmer economic management, but analysts remain sceptical.
With gilt yields at levels unseen since the late 1990s, the government faces a critical test: convince markets it can deliver fiscal discipline without choking off growth. The Autumn Budget is shaping up to be a defining moment for both Reeves and Starmer’s administration.
