Britain's long-term government borrowing costs have surged to their highest level in 27 years, intensifying pressure on Chancellor Rachel Reeves (Labour) ahead of the autumn budget. The yield on UK government bonds, known as gilts, jumped to 5.698% - the steepest rate since 1998.
The dramatic spike means the Government faces significantly higher costs when borrowing from financial markets. When gilt yields rise, bond prices fall, creating additional fiscal challenges for the Treasury.
Currency markets react sharply
Sterling tumbled as the bond sell-off intensified across markets. The pound dropped one per cent against the US dollar to 1.34 and fell 0.6 per cent to 1.15 euros.
The currency weakness reflects mounting concerns over Britain's public finances. Reeves faces the daunting task of filling an estimated £51 billion budget shortfall while maintaining market confidence.
Global pressures compound UK challenges
Government bonds have come under pressure worldwide, with yields rising across the United States and Europe. However, Britain faces particular domestic challenges that distinguish it from other major economies.
Markets fear Reeves will be forced to implement significant tax increases and spending cuts to balance the books. These concerns about fiscal tightening have amplified the selling pressure on UK assets.
Political reshuffle amid market turmoil
The gilt market turbulence follows Prime Minister Sir Keir Starmer's (Labour) announcement of a major Downing Street shake-up after a challenging summer for the Government. The timing has raised questions about political stability during a critical economic period.
As part of the reshuffle, Darren Jones - Reeves' former deputy at the Treasury - becomes the Prime Minister's chief secretary. James Murray will replace Jones as Treasury chief secretary in the new arrangement.
Neil Wilson, UK investor strategist at Saxo Markets, warned about deteriorating market sentiment. "The market move was a sign that investors do not have confidence the Treasury will stick to its strict borrowing rules," he said. "30-year yields at their highest in almost three decades is not a good look for the Labour government, and underscores that there is little fiscal or economic credibility left."
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
