10-year borrowing costs in the UK have reached their highest level since 2008

UK 10-year borrowing costs rose to their highest level since the global financial crisis hit on Wednesday as rising bond sales threatened the Labor government’s ability to meet its self-imposed budget rules.

10 years gilt The yield rose by 0.13 percent to 4.82 percent – its highest level since 2008. Commodities move in opposite direction to prices. The 30-year gilt yield – which on Tuesday rose to its highest since 1998 – also rose, touching 5.38 percent.

UK borrowing costs have risen faster in the UK so far in 2025 than in other major economies, as investors worry about the government’s heavy borrowing needs and the growing threat of a recession.

The Department of Finance tried to stabilize the markets by emphasizing the government’s commitment to its financial rules and ensuring that the public finances were stable.

“No one should have any doubts that meeting the financial rules is not negotiable and the government will have a steel operation in the public finances,” it said.

Sterling was down 1.1 percent against the dollar in the evening to $1.234, its weakest level since April. In the stock market, the domestically-focused FTSE 250 index fell 2 percent.

Andrew Pease, chief investment strategist at Russell Investments, said: “It’s a global sell-off, but compounded in the UK by a toxic mix of a slowing economy, high inflation and the financial outlook is worsening.

Chancellor Rachel Reeves found herself £9.9bn home against her revised budget rules in the Budget and after announcing a £40bn tax hike package aimed at “wiping the slate clean”. ” public funds.

Rising government debt yields have been putting that financial position at risk. The level of bond yields is an important indicator of financial headquarters given its impact on the government’s profit margin, which is more than £100bn a year.

Wednesday’s rate hike means the chancellor’s opposition to the current budget bill is over, according to Ruth Gregory of Capital Economics.

If high yields are stable, it may force the chancellor to announce corrective action to keep the budget policy on track. On March 26, at Office of Financial Accountability will announce a new series of budget estimates that will affect bond yield movements.

“The Chancellor has no room left against his monetary policy because of rising yields, and the market is wondering where to go from here,” said Ben Nicholl, chief fund manager at Royal London Asset Management.

“Raising taxes or cutting sector spending will put downward pressure on growth, which puts pressure on tax revenue when borrowing is already high.”

The Chancellor has pledged to make major tax changes just once a year, in a “single financial event”. The next of these is not expected until the fall. Therefore, any corrective action in March will likely come in the form of cost-cutting, officials said.

Returning the headquarters to its October levels with strong spending plans will mean reducing the growth of the sector’s daily real spending from 1.3 percent a year to less than 1% , said Ben Zaranko, an economist at the Center for Financial Studies think tank.

The government is due to publish the results of a multi-year review of departmental spending in June.

“We’re in a dangerous place” when it comes to the chancellor’s financial headquarters, Zaranko said. “Growth and interest have gone in the wrong direction for him.”

Adding to the problems facing the government are poor GDP figures, which will also play into the OBR’s forecast.

The watchdog is likely to cut its two percent growth forecast for 2025 given the latest weak data, economists have predicted.

The impact on the budget headquarters, however, will depend on whether the OBR decides whether the loss of products is permanent or can be made later in parliament.

“The coming annual statement, spending review and autumn budget are likely to be a painful follow-up to the chancellor’s first budget in history,” said Sanjay Raja, chief economist at Deutsche Bank.

The latest market decline comes after weeks of rising yields in long-dated US Treasuries and German Bunds, although Wednesday’s sell-off was mostly negative in the UK.

Analysts said the simultaneous sell-off in gilts and the pound – which usually benefit from higher yields – had the market feeling depressed from the “mini” Budget. underperforming Liz Truss in 2022.

“What’s happening in the gilt market has dampened confidence in the pound a little bit,” said Chris Turner, head of financial markets at ING, adding that some investors were throwing out recent bets that the pound would be stronger. other major currencies against the dollar.

“FX traders are watching the gilts market and are worried if something similar happens in 2022,” Turner said.

Only the OBR can accurately predict how much the Treasury is holding against its financial rules, the Treasury insisted on Wednesday. “Anything else is pure speculation,” it added.

A Downing Street spokesman said: “We are committed to delivering the biggest financial return in 20 years. I’m not going to talk about specific market movements . . . but when it comes to our approach of the economy we will always put economic stability and good public finances first.

Additional reporting by Jim Pickard