Government issues debt at highest interest rate since financial crisis on eve of Budget
The Debt Management Office has been forced to sell nearly £5bn of five-year gilts at their highest interest rate since 2008, underscoring the fiscal challenge facing John Healey on the eve of his maiden Budget. The body responsible for selling the UK’s debt said it had issued £4.5bn of bonds maturing in 2032 at a [...]
On the eve of Chancellor John Healey's first Budget, the Debt Management Office has had to sell nearly £5 billion worth of five-year gilts at their highest interest rate since 2008. This highlights the fiscal challenge Healey faces. The government sold £4.5 billion of bonds maturing in 2032 at a yield of 5.04 per cent, which is the highest annual payment since the global financial crisis.
The auction was 3.5 times oversubscribed, indicating investors are eager to buy UK government bonds due to their high yields. Bond yields have risen sharply since the Iran war, driven by concerns over its inflationary impact and persistent large deficits in developed economies. Despite outperforming other G7 economies, UK bond yields remain the highest, attributed to the UK's exposure to inflationary shocks and political uncertainty.
The high cost of funding the UK's external deficit erodes fiscal headroom, leaving even less space for spending or tax relief. Chancellor Healey must navigate this challenging economic landscape while adhering to fiscal rules, which include not raising any of the three largest taxes. To meet these constraints, he must reduce day-to-day spending to match tax receipts by the end of the parliament in 2029.
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