UK Government Pays Highest Borrowing Costs Since 1998

The Government of the United Kingdom sold £4.25 billion in 30-year government bonds on Tuesday at a yield of 5.82%, the highest borrowing rate since the Debt Management Office was established in 1998. The sale occurred during a global bond market sell-off driven by rising public debt concerns and inflation fears linked to increased oil prices and conflict in the Middle East.

Chancellor of the Exchequer John Healey informed the House of Commons that national borrowing remains too high and economic growth is fragile. He emphasized that fiscal discipline is paramount as the surge in borrowing costs is expected to eliminate at least half of the £24 billion fiscal headroom established in March. While Healey announced a 20 percent business rate cut for pubs and hospitality venues for the October 28 Budget, he refused to rule out tax increases to address a public finance gap.

Bank of England Governor Andrew Bailey warned that energy prices are creating upside risks for inflation, which reached 2.9 percent in July. Prime Minister Andy Burnham pledged to adhere to fiscal rules to ensure the country is not dependent on bond markets. Financial experts have since advised retail savers to move funds from low-interest accounts to higher-yielding assets to prevent the erosion of spending power.