UK government pays highest interest rate on 30-year bond since 1998

The UK Treasury was forced to issue a 30‑year gilt at a 5.82 % coupon on Tuesday, the highest rate paid for such a bond since the Debt Management Office was created in 1998, to raise £4 billion of financing. The steep yield reflects a broader sell‑off in global sovereign markets and comes as Chancellor John Healey, who delivered a budget‑setting speech in Coventry on Monday, stresses his determination to balance the public accounts. The higher borrowing cost arrives amid heightened market anxiety over a possible resurgence of inflation, driven by rising oil prices linked to the ongoing Middle East conflict and concerns about the growing public debt burden.

The elevated interest rate is set to erode a substantial portion of the fiscal leeway that Healey’s predecessor, Rachel Reeves, had projected. The Office for Budget Responsibility’s upcoming forecast, due before the budget on 28 October, anticipates that the surge in gilt yields will wipe out at least half of the £24 billion “headroom” that was built into the spring forecast. This erosion of fiscal space intensifies the pressure on the chancellor to find savings or revenue measures, as the cost of servicing debt climbs sharply. The situation is compounded by comments from Bank of England Governor Andrew Bailey, who told MPs that the recent spike in oil prices—Brent crude trading around $97 a barrel—adds upside risks to inflation and could further tighten borrowing conditions.

Bailey, appearing before the Commons Treasury Select Committee alongside three Monetary Policy Committee members, warned that the energy shock is already feeding through to consumers, with UK mortgage rates now roughly three‑quarters of a percentage point higher than before the conflict began—the steepest rise among G7 nations. While Bailey denied any secret plan to raise policy rates, he highlighted that the higher borrowing costs are already affecting households without further monetary action. Within the committee, dissenting views emerged: minority voter Megan Greene warned of the danger of acting too late on inflation, whereas Dave Ramsden and Alan Taylor argued that price pressures have been less severe than initially feared, partly due to the impact of the Iran war on global energy markets.

⚡ Effects Interpreter