UK Long-term Borrowing Costs Highest Since 1998 Ahead of October Budget
Faisal Islam, Economics editor, and Emer Moreau, Business reporter
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Long-term government borrowing costs have risen to a 28-year high, putting further pressure on Prime Minister Andy Burnham ahead of his first Budget next month. The yield on a 30-year gilt — a loan to the British government — rose to 5.89%, the highest since 1998.
The effective cost of borrowing for governments across the globe has continued to rise this morning with new multi-decade highs in market interest rates. These moves reflect concerns about inflation arising from the ongoing Iran war, competition from major tech firms for long-term borrowing, and worries about state borrowing levels.
All of these factors will make the Budget process trickier for Burnham, who will face MPs for the first time as prime minister on Tuesday. Higher borrowing costs will reduce the amount of headroom the government has against its self-imposed fiscal rules, limiting the amount his Chancellor, John Healey, can spend on consumer-friendly measures to ease the cost of living.
Downing Street stated that fiscal discipline is the "bedrock" of Britain’s economic stability and national security. However, a spokesperson for the prime minister refused to comment directly on the rise in borrowing costs.
"The chancellor and the prime minister are in lockstep that the government will meet the fiscal rules with a buffer against uncertainty, and we’re cutting the deficit faster than any other G7 economy to the lowest level in six years," the spokesperson said.
The yield on the benchmark 10-year gilt rose to its highest rate since June 2008, at the height of the global financial crisis. Borrowing costs in the US, Japan, and Europe have hit similar highs in recent days. Global markets reacted particularly after suggestions in the US that its central bank could raise rates.
The Chancellor is in the USA attending a meeting of global finance ministers and central bankers. He emphasized the UK’s strong economic performance during his G20 address, highlighting the fastest growth in the G7 so far this year, improving productivity, and rapid deficit reduction.
JP Morgan’s chief market strategist for Europe, Karen Ward, noted that governments worldwide want to increase spending and are turning to borrowing to fund it.
