Global Bond Sell-Off Pushes UK Borrowing Costs Toward 19-Year High Ahead of Budget

A global sell-off in government bonds has put fresh upward pressure on UK borrowing costs ahead of a closely watched budget for Chancellor John Healey next month.

The yield on 10-year UK government bonds, known as gilts, rose to 5.38% by mid-morning on Thursday, approaching the 19-year high set the previous week. Bond yields move inversely to prices, so rising yields reflect falling demand for the debt.

Pressure on the budget

The rising cost of gilts increases the upfront cost of government investment and limits the chancellor's room for manoeuvre as the budget approaches. Higher borrowing costs generally force governments to either cut spending, raise taxes, or accept larger deficits to finance the same level of expenditure.

The sell-off in UK bonds is part of a broader global trend, with international bodies warning in recent periods of rising debt and borrowing risks across major economies. The UK has faced particular scrutiny over its fiscal trajectory given persistently elevated borrowing costs relative to historical norms.

The situation adds to political pressure on the government as it finalizes its budget plans, with debate already underway among officials and commentators about the sustainability of the UK's reliance on bond markets to finance government spending.

Further details on how the government plans to respond to the rising borrowing costs in the upcoming budget were not immediately available.