UK Government Faces Mounting Pressure as Bond Yields Hit 27-Year High

Chancellor Rachel Reeves confronts rising borrowing costs, stagnant growth, and fiscal constraints, raising concerns over potential tax hikes or spending cuts.

UK government bond yields have surged to their highest levels since 1998, with 30-year gilts reaching 5.37% and 10-year gilts at their highest since 2008.
The sharp rise in borrowing costs threatens to erode Chancellor Reeves's fiscal headroom, potentially forcing tax increases or spending reductions to adhere to fiscal rules.
Economists attribute the rise in yields to a combination of stagnant economic growth, persistent inflation, and increased global borrowing competition, particularly following Donald Trump's policy announcements in the US.
The Labour government's ambitious spending plans, including increased defense budgets and public sector pay raises, are adding pressure to the already strained fiscal outlook.
The Budget Responsibility's upcoming March forecast is expected to clarify the extent of the fiscal challenges, with concerns that the UK may breach its fiscal rules without corrective action.