Tue, 02 Sep 2025

Tue, 02 Sep 2025 Faisal Islam: What's causing the UK's long-term borrowing costs to rise?

The cost of government borrowing has risen again - what does it mean for the public finances and upcoming Budget?
The 30-year gilt is a key indicator of long-term borrowing costs for the UK government, which can impact sectors such as pensions and insurance. The yield represents the effective interest rate that the government pays on its debts, with higher yields indicating increased borrowing costs. There are two main differences between this situation and the infamous mini-Budget in 2022:
* The rise in yields is less rapid than it was three years ago.
* The increase in yields is currently limited to longer-term debt (30-year gilt), whereas in 2022, shorter-term debt (two-year and five-year government loans) was also affected. The impact on the economy is likely to be significant, particularly for defined benefit pensions systems that rely on fixed and predictable payouts over long periods. The UK government's plans for its upcoming Budget will be closely watched by markets, with some traders speculating that the chancellor's control is weakening due to a recent reshuffle of personnel. The situation is further complicated by structural changes in pensions markets, which have reduced demand for long-term debt. Markets are also keeping a close eye on the Bank of England's plans for selling off its stock of government debt, amassed over years. Overall, the record-breaking 30-year gilt yield serves as a warning sign that bond sharks are sensing potential weaknesses in the UK government's economic management and fiscal credibility.
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