UK borrowing costs reach highest 30-year rate since 1998
The Treasury paid 5.82% to raise £4bn, putting pressure on the government’s budget headroom ahead of the 28 October budget.
The UK Treasury has paid its highest interest rate for 30-year borrowing since 1998, raising £4bn at a yield of 5.82%. The auction highlights the fiscal pressure facing Chancellor John Healey as global bond markets sell off.
Higher borrowing costs are expected to reduce at least half of the government’s £24bn budget headroom when the Office for Budget Responsibility updates its forecast before the 28 October budget. That estimate remains subject to the OBR’s calculations.
The Guardian reported that investors have been unsettled by concerns over inflation and rising public debt. Higher oil prices following the resumption of conflict in the Middle East have added to those risks, although the supplied material does not establish how much of the bond-rate increase is directly linked to the conflict.
Bank of England governor Andrew Bailey told MPs that energy prices were increasing the risks to inflation. Brent crude was trading at about US$97 a barrel, while disruption around the Strait of Hormuz and attacks on Russian refineries were cited as possible sources of further pressure.
Bailey said UK mortgage rates were about 0.75 percentage points higher than when the conflict began, but said there was no secret plan to raise interest rates. Bank policymakers are due to meet next week, with members divided over how quickly inflation risks require action.
