LONDON — Long-term borrowing costs for the UK government have climbed to their highest level since 1998, adding fresh pressure on Prime Minister Andy Burnham and Chancellor John Healey before next month’s Budget.
The yield on 30-year gilts rose to 5.89% on Tuesday, while the benchmark 10-year gilt reached 5.22%, its highest level since June 2008. Higher yields mean the government must pay more to borrow, which can reduce the room available for tax cuts or spending pledges.
Burnham told MPs that his government’s “bedrock” would be fiscal responsibility as it tries to deal with the cost-of-living crisis.
What rising gilt yields mean for the Budget
The rise in borrowing costs matters because the Treasury has set self-imposed fiscal rules that limit how much the government can borrow. If more of the budget is swallowed by debt interest, there is less headroom for measures designed to ease household pressures.
That could force difficult choices, including tighter spending plans or tax rises, if Healey wants to keep within those rules. The chancellor has already said he will stick to the framework set by his predecessor, Rachel Reeves, because it gives markets more clarity about the path of borrowing.
Higher government borrowing costs can also feed through into more expensive borrowing for businesses and households, which can in turn weigh on the wider economy.
Burnham faces demands over living costs and spending
Burnham told the House of Commons that the economy and the cost of living were the biggest issues facing the country. He said Britain was “not where any of us would wish it to be”, but insisted there would be “more substantial change” to help ease living costs.
The government has already introduced several measures for consumers and businesses since entering Downing Street, and further support is expected to feature in the Budget on 28 October. But rising debt costs make that task more difficult, especially with defence spending also under pressure.
His former economic adviser, Lord Jim O’Neill, said the market pressure would force Labour to “get real” about the state pension triple lock and what he described as excessive welfare spending.
Global debt markets are also under strain
The UK is not alone. Borrowing costs have also risen in the US, Japan and across Europe in recent days, reflecting wider investor concerns about inflation, public borrowing levels and heavy spending by technology companies on artificial intelligence.
Global markets were also shaken by suggestions in the US that the central bank could raise rates, while Japan is facing pressure to do the same. In the US, borrowing costs hit a fresh high on Tuesday as renewed strikes in the Middle East pushed up oil prices and raised inflation worries.
Speaking at the G20 in the US, Healey said the UK had the fastest growth in the G7 so far in 2026, that productivity was improving, and that Britain was cutting its borrowing at the fastest rate of the major economies.
Kathleen Brooks, research director at XTB, said the latest moves were “red lights flashing” and warned that record debt and a record tax take made this a difficult moment for the new government and its chancellor.
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