UK government borrowing costs climbed again on Wednesday morning, with the yield on 10-year gilts reaching 5.294% — the highest since 2007, according to LSEG data reported by the Wall Street Journal — hours before Andy Burnham was due at the despatch box for his first prime minister's questions. Thirty-year yields rose to 5.921%, the highest since 1998.
The move extends a sell-off that on Tuesday took 10-year yields to around 5.23%, their highest since June 2008, on Reuters figures. It lands at an awkward moment for the new government: the chancellor, John Healey, has yet to deliver his first budget, and the cost of servicing government debt bears directly on how much room he has to spend.
Market reporting attributes the rise largely to factors outside the UK. Reuters said gilts were tracking a global increase in borrowing costs as higher oil prices reignited inflation concerns, with the market also playing catch-up after Monday's bank holiday. The Wall Street Journal linked the move to fresh US–Iran hostilities pushing oil prices up and raising the prospect of central banks, including the Bank of England, raising rates. Traders have fully priced a quarter-point Bank of England rise by the end of the year, on LSEG data.
Not all commentary accepts that reading. Lord Jim O'Neill, the former Goldman Sachs chief economist and former Treasury minister, told broadcasters on Wednesday: "It is a tough day. Ten-year gilt yields or 10-year interest rates have risen by a quarter of a percent, which in one day is a lot. We've not had that since Liz Truss days …"
He added: "If your country, whether it be ours or others, is under the focus of 'Can they come up with a sensible fiscal strategy?' on a day where the markets think 'Well, no you're not showing any signs of it', they're going to have a bad day." Lord O'Neill said Burnham should end the pensions triple lock and cut welfare spending "in a credible manner", describing these as "golden opportunities" that would lead to a "significant decline" in borrowing costs.
Sir Howard Davies, the former chair of NatWest and of the Financial Services Authority, told BBC Radio 4's Today programme that Burnham's stance on economics was causing some concern in the markets, but said Tuesday's rise in long-term borrowing costs was not "a major crisis of confidence in the UK government".
The Guardian reported that the rise in borrowing costs has cost the Treasury £12bn from its fiscal safety net, and that Healey's headroom against Labour's fiscal rules could be halved at his first budget if the current global bond sell-off persists. The Treasury has not published a figure.
Separately, the Resolution Foundation published analysis arguing that Healey cannot raise the £28bn a year needed to meet Labour's pledge to spend 3.5% of GDP on defence by 2035 without asking average workers to pay more. The thinktank said that despite tax rises amounting to £70bn a year since 2024, the UK's "tax wedge" — taxes on earnings, net of benefits, as a share of total labour cost — remains low by international standards, at 32.4% for a single earner on average pay.
"No other OECD rich country has a bigger state and a lower burden on average workers, so any politician promising both is not being realistic," said James Smith, the thinktank's chief economist.
Healey, who resigned from Sir Keir Starmer's government in June over defence funding and became chancellor on 20 July, has said he will wait until next year's spending review before setting out how the 3.5% pledge will be met.
Burnham, prime minister since 20 July, made his first Commons statement as PM on Tuesday, telling MPs: "This is politics done differently. Problem solving over point scoring." Kemi Badenoch, the Conservative leader, said his economic diagnosis "is completely wrong", adding: "He is living in the past and he wants to take us back to the 1970s."
The Commons was also due to complete the remaining stages of the Representation of the People Bill on Wednesday, legislation that would extend the vote to 16- and 17-year-olds — around 1.7 million people, according to the House of Commons Library — and introduce automatic voter registration. The Conservatives and Reform UK oppose the change.
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