The cost of UK government borrowing has risen to near a 27-year high, intensifying pressure on Chancellor Rachel Reeves to outline how she will address the public finances deficit ahead of the autumn budget. The yield on the UK's 30-year bond climbed on Tuesday to 5.62%, approaching a peak of 5.66% seen in April, the highest since 1998.
Higher borrowing costs have increased the annual cost of financing UK government debt to over £100bn, nearly 10% of the budget. Reeves is expected to face a deficit of between £20bn and £40bn, requiring £30bn to £50bn in extra taxes, spending cuts, or higher borrowing to maintain fiscal rules and a £10bn buffer.
Economists have warned that the UK faces unique strains from inflation persistence and weak growth. Catherine Mann of the Bank of England's rate-setting committee said policymakers underestimated inflation persistence, while Mohamed El-Erian, an economic adviser, cited stagnant productivity as a core problem that drags on growth and increases structural pressures.
Jagjit Chadha, an economics professor, described the situation as ‘dire’ and said the government was vulnerable to a global shock that could force an International Monetary Fund bailout. Former Bank of England deputy governor Charlie Bean cautioned against alarmist talk but noted that Reeves had created difficulties by committing not to raise main tax rates and maintaining a minimal fiscal buffer.
