The UK’s long-term borrowing costs have reached their highest level since 1998

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UK long-term borrowing costs peaked in 2018. Since 1998, investors have been concerned about stagflation.

Yields on 30-year gilts rose 5.21 per cent, after selling £2.25bn worth of longer-dated bonds.

The increase would push yields past the previous peak hit in October 2023 and beyond levels reached during the market downturn, with Lease Truss’ ill-fated “small” budget in 2022.

Investors’ concerns about the UK’s outlook have come amid a global sell-off in government bonds in recent months, partly on fears that US President-elect Donald Trump’s tariff plan will be inflationary.

But there were investors. He was especially worried Weak growth and persistent price pressures will cause the United Kingdom to enter a period of stagflation, with the Bank of England restricted from cutting rates to support the economy.

“There may be a bit of a buyer’s strike going on at the moment,” said Craig Inch, head of prices and cash at Royal London Asset Management. He said a combination of large-scale long-dated gilt sales and “mixed” UK economic data was deterring investors from long-dated debt.

Gilt’s moves will be a concern at the Treasury as Chancellor Rachel Reeves has left herself with narrow headroom on her revised fiscal rules as she draws up debt plans. October budget.

The Treasury is expecting a new round of official forecasts from the Office for Budget Responsibility in March, which will include new estimates of the amount of wiggle room the government has in its self-managed budget regime.

Andrew Goodwin of Oxford Economics said the recent moves and the expected £9.9bn cost of spending had wiped out two-thirds of the core sector, contrary to the chancellor’s key budget rule, which requires her to cover current spending – excluding investment – with tax receipts. .

The final headroom forecast will not be determined until it is submitted to OBR’s view.

“The chancellor took a bit of a gamble by leaving a bit of headwinds in the budget,” Goodwin said. “There are many ways this can go wrong, and mass production was one obvious one.”

More disappointing economic data, including growth figures, piled pressure on the chancellor. The Bank of England forecast zero growth for the final quarter of 2024 at its last meeting in December, following two consecutive months of data showing modest contraction.

Business confidence has been hit by the Reeves’ decision to slash £25bn of employer national insurance contributions in the budget, which, combined with a proposed rise in the national living wage, will increase labor costs.

Meanwhile, investors have backed off their hopes for an interest rate cut in 2025, amid persistent inflation. Consumer price inflation rose to 2.6 percent in November from 2.3 percent in the previous month.