UK PM's spokesperson: At cabinet, finance minister Reeves said government was focused on going further to support BoE in reducing inflation, controlling public spending and driving growth

UK PM's spokesperson: At cabinet, finance minister Reeves said government was focused on going further to support BoE in reducing inflation, controlling public spending and driving growth

The UK government's long-term borrowing costs have reached their highest level since 1998, adding significant pressure on Chancellor Rachel Reeves ahead of the Budget. The yield on 30-year government bonds, known as gilts, jumped to 5.72% , making it more expensive for the government to borrow money.

This increase in borrowing costs is part of a global trend, with yields on 30-year German, French, and Dutch bonds climbing to their highest since 2011, and 30-year Treasury bond yields in the US rising to their highest in more than a month. The pound also fell more than 1% against the dollar, reaching its lowest level since 7 August .

The UK Debt Management Office sold a record £14bn of 10-year bonds on Tuesday, attracting £141bn worth of orders from investors . This appetite for shorter-term UK government debt suggests that investors are more comfortable with the risk of short-term borrowing compared to long-term debt.

Chancellor Reeves is facing "highly difficult choices" in the Budget, with her manifesto promising not to raise taxes such as income tax, VAT, or national insurance on "working people" . One option being considered is the extension of the freeze on income tax thresholds, which would effectively be a "stealth tax" as more people are drawn into paying higher rates over time. Additionally, Reeves is considering reforming property taxes .

The government's official forecaster, the Office for Budget Responsibility (OBR), takes borrowing costs into account when assessing whether the chancellor is meeting her self-imposed fiscal rules. Reeves set out two rules on government borrowing, which she has repeatedly said are "non-negotiable": day-to-day government costs will be paid for by tax income, rather than borrowing by 2029-30, and to get debt falling as a share of national income by the end of this parliament in 2029-30 .

Reeves' financial buffer to stick to these rules is relatively slim at £10bn. The chancellor recently refused to rule out tax rises after disappointing data on economic growth. The OBR's forecasts for government debt suggest that Reeves would need to raise between £18bn and £28bn in the Budget to avoid breaking her fiscal rules and maintain her £10bn buffer .

In response to these challenges, the government announced a partial reshuffle, with Baroness Shafik, a former deputy governor of the Bank of England, named as Keir Starmer's new chief economic adviser. The moves aim to beef up the economic know-how in Downing Street ahead of the autumn's Budget, which is expected to be a defining moment for the Labour government .

At the cabinet, Reeves stated that the government was focused on supporting the Bank of England in reducing inflation, controlling public spending, and driving growth . These priorities will be crucial in navigating the financial challenges ahead.

References:

BBC News. (2025). UK government long-term borrowing costs reach highest level since 1998. Retrieved from https://www.bbc.com/news/articles/cy989njnq2wo

UK Prime Minister's Office. (2025). Cabinet meeting summary. Retrieved from https://www.gov.uk/government/news/cabinet-meeting-summary