30-year gilt yield hits 5.89%, highest since 1998

The yield on a 30-year gilt reached 5.89% on Tuesday. That is the highest since 1998.

The 10-year gilt, the benchmark for much UK lending, rose to 5.22%. That is its highest since June 2008, in the middle of the financial crisis.

Gilt prices move the other way to yields. When yields rise, the government pays more to borrow, and it pays more on every new tranche of debt it issues.

Prime Minister Andy Burnham addressed MPs for the first time on Tuesday. He told the Commons that the economy and the cost of living were "the biggest issues facing the country" and that "fiscal responsibility" would be his government's "bedrock".

His Chancellor, John Healey, has said he will keep the fiscal rules set by his predecessor, Rachel Reeves. Those rules cap borrowing, so a rising interest bill eats the headroom against them.

The arithmetic from there is not complicated. More money forecast for debt interest means less for anything else, and makes a spending squeeze or a tax rise more likely at the Budget on 28 October.

The Budget is expected to prioritise cost-of-living measures. Higher borrowing costs reduce what Healey can spend on them.

This is not only a British problem. Borrowing costs in the US, Japan and Europe have hit similar highs in recent days, and US costs hit a fresh high on Tuesday as renewed strikes in the Middle East pushed up oil prices.

Karen Ward, JP Morgan's chief market strategist for Europe, told the BBC that governments everywhere want to spend more and are borrowing to fund it — and are now competing for that money with large technology companies raising cash for AI investment.

Kathleen Brooks, research director at the investment company XTB, told the BBC News Channel that record government debt and a record tax take mean "these are not comfortable times for the new government and the new chancellor".

For founders, the transmission runs through the loan book. Higher government rates feed through into business and household borrowing costs, which raises the price of a growth loan, an invoice facility or a commercial mortgage, and cools the demand that pays for them.

Healey told the G20 that the UK had the fastest growth in the G7 so far in 2026, that productivity was improving, and that the UK was cutting borrowing faster than other major economies. Those are the government's own claims, made while the bond market was saying something less flattering.

The practical date is 28 October. Anyone planning to price debt, sign a lease or budget an employment cost line for next year has seven weeks to work out what they would do if the answer got more expensive.