Traders brace for inflation data and public finance update as long-term government debt hits levels last seen in 1998
Government borrowing costs climbed sharply on Monday, with the interest rate on 30-year UK gilts rising to levels not seen in nearly three decades.
The yield on 30-year bonds — which moves inversely to prices — rose 0.05 percentage points to 5.61 per cent, bringing it close to the 27-year high last reached in May 1998. That means the UK is now paying almost a full percentage point more than during the market turmoil of October 2022, when Liz Truss’s mini-budget crisis pushed yields to 4.78 per cent.
Benchmark 10-year gilt yields also ticked higher, up 0.05 percentage points to 4.74 per cent.
The moves reflect mounting unease over Britain’s public finances and the persistence of inflation, which investors fear could limit the Bank of England’s room to cut interest rates further this year. Traders have largely priced out the prospect of additional reductions following the quarter-point cut to 4 per cent on 7 August.
Markets will be watching closely on Wednesday when the latest consumer prices index figures are released. Inflation is expected to edge up from 3.6 per cent in June to 3.7–3.8 per cent in July. Public finance data due on Thursday will add to the pressure, with any disappointment likely to reinforce expectations that the Chancellor, Rachel Reeves, may need to announce further tax rises in the autumn budget.
Simon French, chief economist at Panmure Liberum, said there was no single trigger for the latest gilt sell-off, but structural changes were at play. “The gradual closure of defined benefit pension schemes, traditionally one of the largest buyers of long-dated gilts, continues to reduce demand,” he noted.
The spike in long-term borrowing costs is less damaging than in past cycles, economists say, because the Debt Management Office has shifted issuance towards shorter-dated maturities, reducing reliance on 30-year debt.
Even so, the divergence with Europe highlights the pressure on UK markets. The yield on Germany’s 30-year Bund slipped 0.01 percentage points to 3.33 per cent, though it remains near a 14-year high.
The last time UK long-dated gilt yields reached current levels was in 1998, the year Geri Halliwell left the Spice Girls. For investors, the return to such heights signals a decisive break from the ultra-low borrowing era of the 2010s and underlines the scale of the fiscal and monetary challenges facing Reeves as she prepares her first full budget.
Jamie Young
Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.
When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.