UK long-term borrowing costs could halve chancellor’s budget headroom
Yield on 30-year gilts highest since 1998 as rout triggered by global factors underlines tricky backdrop John Healey faces Business live – latest updates The chancellor’s headroom against Labour’s fiscal rules could be almost halved at his first budget if the current global bond sell-off persists into the autumn, economists say. The UK’s long-term borrowing costs jumped to their highest level…
On Tuesday, the yield on 30-year UK government bonds, or gilts, surged to 5.89%, their highest level since early 1998. This marked a significant rise from 5.1% in the OBR's March forecast. The sell-off in government bonds, driven primarily by international factors, has left Chancellor John Healey's budget headroom against Labour's fiscal rules almost halved by his first budget if the trend persists.
Deutsche Bank's chief UK economist, Sanjay Raja, predicts Healey's headroom would fall from £26bn to £13.8bn before any additional spending plans. Raja believes Healey might aim to maintain a minimum headroom of £10bn to reassure markets. Higher yields increase the cost of financing the government's debt, which could pass through to the Office for Budget Responsibility's (OBR) forecasts for Healey's budget.
The sell-off in gilts was not limited to the UK market; Japanese 10-year yields hit their highest level since the 1990s due to expectations of the Bank of Japan raising interest rates to control inflation. The bond sell-off was also linked to higher oil prices, which were up 1.7% to $92, and concerns about the US deficit due to the Trump administration's tax cuts and trade tariffs.
Written by urgent.news from Guardian Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
