UK pays highest borrowing costs since 2008 ahead of Budget

Summarised from 2 outlets · 4 reports · Updated 29 Oct, 13:20 · Archive

The UK has sold five-year government bonds at their highest interest rate since the financial crisis.

The Debt Management Office sold £4.5bn of five-year gilts on Tuesday at a yield of 5.036 per cent, the highest annual payment since the global financial crisis. The UK now faces the highest borrowing costs of any G7 economy, outstripping even France, as investors charge a premium to hold British government bonds amid concerns over inflation and persistent large deficits.

The surge in borrowing costs coincides with John Healey's maiden Budget. Global bond yields have climbed sharply since the start of the US-Iran war as investors bet that energy price inflation will force higher interest rates. The auction of UK government bonds was 3.5 times oversubscribed, with investors attracted to the highest yields available among developed economies.

The Office for Budget Responsibility said Britain's interest bill will hit £123.9bn this year alone, £14.5bn more than expected seven months ago. The cost of servicing the national debt, which stands at a record £3tn, is forecast to reach £160bn in 2031-32. Over six years, the debt interest bill will total £854bn, some £70bn more than anticipated in March.

Economists have warned that Healey risks spooking investors if he announces plans for further borrowing to fund spending. Investors have pointed to concerns over Labour's tax and spending plans, political uncertainty and Britain's exposure to inflationary shocks as reasons for the high premium they charge for UK bonds.

The rising interest payments leave Healey short of cash to fund other areas such as defence and health. In his Budget, Healey said he wanted to 'reduce government borrowing so we spend less on debt interest and more on the priorities of the British people'. He announced tax increases including on banks and bookies to help offset the rising costs.

How it is being reported

• Britain faces £850bn interest bill as towering debt drives up taxes and hurts public servicesTaxpayers will stump up more than £850billion in just six years to pay the interest on Britain's towering debt pile.Daily Mail · 29 Oct, 08:14
• Britain faces £850billion interest bill as towering national debt spirals towards £4trillionTaxpayers will stump up more than £850billion in just six years to pay the interest on Britain's towering debt pile.This is Money · 29 Oct, 07:00
• Britain pays most to borrow since 2008 as bond markets put Healey on notice ahead of BudgetBritain has paid the highest interest rate on five-year debt for nearly two decades as John Healey puts the finishing touches to his Budget.This is Money · 27 Oct, 15:31
• Government issues debt at highest interest rate since financial crisis on eve of BudgetThe Debt Management Office has been forced to sell nearly £5bn of five-year gilts at their highest interest rate since 2008, underscoring the fiscal challenge facing John Healey on the eve of his maiden Budget. The body responsible for selling the UK’s debt said it had issued £4.5bn of bonds maturing in 2032 at a [...]City AM · 27 Oct, 14:14

In this story: John Healey · Office for Budget Responsibility · Debt Management Office · United Kingdom

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