The cost of UK government borrowing has surged to its highest level in over a year following Wednesday’s Budget announcement, raising concerns about the impact on the wider economy.

The yield—essentially the interest rate—that the government has to pay lenders on 10-year bonds shot above 4.5% on Thursday before easing slightly. This spike came in the wake of Chancellor Rachel Reeves’ decision to sharply increase government borrowing to fund new spending projects, signalling to investors that interest rates may not fall as quickly as hoped.
Why does this matter? Rising yields mean it costs more for the government to borrow money, and these rates often set the benchmark for everyday loans and mortgages. In short, higher borrowing costs could mean more expensive mortgages and loans for everyone.
The surge in yields suggests that investors are viewing lending to the UK government as riskier than before. At one point on Thursday, the yield on 10-year government bonds hit 4.53% before slipping back to 4.46%.
In response, Chancellor Reeves told Bloomberg TV that the government's "number one commitment" remains "economic and fiscal stability." She assured that public finances are now on a "stable and solid trajectory." Meanwhile, a spokesperson for Sir Keir Starmer highlighted a positive response from organisations like the IMF, which welcomed the government's fiscal approach.
The Budget, which included nearly £70bn of extra annual spending funded by tax hikes on businesses and more borrowing, has not been universally welcomed by the markets. Analysts see the rise in bond yields as an indication of market scepticism over the increased spending.
Kathleen Brooks, from trading firm XTB, suggested the markets weren't convinced. "This is another sign that the chancellor overestimated the market's desire to absorb more sovereign debt issuance from the UK," she said.
Susannah Streeter of Hargreaves Lansdown added that forecasts for interest rate cuts are now being reconsidered. "Markets aren't expecting rates to drop below 4% until 2026," she said, citing fears that the Budget could fuel inflation over the next two years.
She warned that bond yields are likely to remain volatile as investors closely watch how the government allocates its swollen investment budget, hinting at growing nervousness about Labour's economic direction.
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