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The UK government's borrowing costs continue to rise, reaching the highest level since the financial crisis.
Ten-year bonds today reached yields of 4.89 percent, the highest since 2008, when they exceeded 5 percent.
Bond yields rise when investors in government bonds, also called gilts, sell them and their prices fall. This has been happening as investors worry about Britain's finances or decide to put their money elsewhere. It also comes amid concerns about rising inflation.
Lindsay James, investment strategist at Quilter Investors, said part of the increase is due to rising debt costs around the world. US 10-year government bonds are also rising, offering investors 4.68 percent.
And he said another factor is the “large size” of recent bond sales by the UK.
What does this mean for mortgages?
The government's high borrowing costs come amid fears that inflation is rising again, which could lead the Bank of England to keep rates unchanged.
Economists had previously expected the Bank of England's base rate, currently at 4.75 per cent, to begin to slowly fall, perhaps to as low as 3 per cent by the end of this year.
But the central bank will likely want to postpone further cuts if inflation starts to rise again, even though economic growth is stalling.
Oil prices have slowly begun to gain ground, which could suggest rising energy prices as well as higher gasoline prices at the pump. Brent crude oil has risen 5.6 percent in the past month.
High inflation combined with poor growth is known as stagflation, a scenario that governments try to avoid as household incomes decline.
What does it mean for taxes, public spending and the economy?
As well as suggesting more expensive borrowing for households, expensive public debt costs the Treasury more in interest payments, potentially meaning less spending is needed on other projects or more taxes.
Ms James said that while higher debt costs “will undoubtedly reduce Rachel Reeves' already limited budget space, the likelihood of further tax rises in the coming months appears slim”.
There are signs that companies are responding to their decision to increase employers' national insurance rates by cutting jobs and raising prices, which is “pushing the UK further into stagflation, while the recent stagnation of economy will underscore the clear risk of another round of reforms.” tax increases.”
“Spending cuts look the most likely outcome, with the Treasury stating yesterday that meeting fiscal rules remains “non-negotiable”.
What about the pound?
The sell-off in government debt comes as the value of the pound falls against the dollar. The pound is now worth $1.23, the lowest level since November 2023.
