Uk 30-year borrowing costs hits new 27-year high
Britain’s long-term borrowing costs have just hit a new 27-year high, as the pressure on Rachel Reeves refuses to abate.
The yield, or interest rate, on 30-year UK gilts has risen to 5.747% this morning, above the high of 5.723% hit yesterday.
This rise, during a global sell-off of long-dated government debt, continues to highlight the challenge facing the chancellor ahead of the autumn budget.
Ten-year gilt yields, which are more representative of the rate at which the British government now borrows, have risen to their highest since January this morning.
Rising borrowing costs will intensify the pressure on the chancellor to announce spending cuts or tax rises, to satisfy the UK’s fiscal watchdog, the Office for Budget Responsibility, that she is keeping within the fiscal rules.
Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK, says, investors are clearly worried about the long-term trajectory of the UK debt burden.
Pugh fears the UK is close to a ‘debt trap’, but doesn’t believe it will be foreced into an IMF bailout as some have suggested, explaining:
If Chancellor Rachel Reeves is tempted to loosen [the UK fiscal rules] in the Autumn Budget in a way that raises the UK’s debt trajectory, then financial markets are likely to push gilt yields even higher, further increasing the interest-rate bill.
“This is increasingly important because the UK is arguably close to a debt trap. That happens when the interest rate on a country’s debt is higher than its nominal growth rate. The result is that the debt pile grows faster than the economy. If that happens, then the debt-to-GDP ratio grows every year, even if borrowing doesn’t increase, making it extremely hard to escape without painful measures.
“The cash size of the UK economy is likely to grow by 3.5–4% a year (1.5% real growth, plus 2.5% inflation), over the next few years. But, the average interest rate on UK government debt is about 3.9%. This leaves very little room for error.
“That said, warnings of a 1970s-style economic crash and a trip to the International Monetary Fund (IMF) are overdone.
The UK’s recent tax rises mean that the debt-to-GDP ratio is likely to stabilise over the rest of the decade rather than continue to rise. What’s more, inflation and interest rates will probably fall a little further next year, helping to ease the burden. In any case, the UK has the second-lowest debt-to-GDP ratio in the G7, so there is room for it to rise further if needs be in the short-term.
Key events
The latest healthcheck on Europe’s economy won’t calm fears that growth remains sluggish.
A survey of purchasing managers at euro area companies has found that the eurozone economy continued to expand at a sluggish pace last month, with growth slowing in the services sector.
Data firm S&P Global’s Composite PMI Output Index, which tracks activity across the economy, has risen to 51.0 for August, up from 50.9 in July. That’s a 12-month high, but still only slightly above the 50-point mark showing stagnation.
Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:
“Riding a bike too slowly can make you tip over. That’s the risk facing the eurozone. Yes, the economy has been growing since the start of the year, but the pace is painfully slow.
In August, the HCOB Composite PMI Business Activity Index stood at 51.0 – barely above stall speed. Political tensions in France and Spain, uncertainty around the EU-US trade deal, and ongoing troubles in the key automotive sector aren’t helping. On the bright side, increased defense spending across Europe and Germany’s infrastructure program offer hope that the economy might keep moving forward – and avoid falling off the bike.
Right now, the services sector feels more like stagflation than recovery. The rate of expansion has slipped even further from an already slow pace, while cost pressures have increased and selling price inflation nudged slightly higher
We should note that the sell-off in UK government bonds has focused on longer-dated debt.
Five-year gilts, for example, are little changed today. The yield on these shorter-dated UK bonds did rise yesterday, to nearly 4.2%, but that’s only the highest level since late May.
US 30-year yields hits 5%
America’s long-term borrowing costs are also rising.
The yield, or interest rate, on US 30-year Treasury bonds has hit 5% today, for the first time since July, as the global bond sell-off refuses to abate.
Reeves could set UK budget date for 26 November
Speculation is growing that the eagerly-awaited UK autumn budget may be delivered on 26 November.
Huffington Post UK reported last night that Rachel Reeves has pencilled in November 26 for the date of the Budget, and that it won’t happen before mid-November at the earliest.
The government must give the Office for Budget Responsibility at least 10 weeks notice to conduct its assessment of the government’s tax and spending plans, so the OBR can give its verdict once the budget speech has been delivered.
Bloomberg say Reeves is expected to announce the November date for unveiling her spending plan later today.
City consultancy Capital Economics predicted yesterday that Reeves could need to fill a ‘black hole’ of between £18b and £28bn, likely mostly through higher taxes.
Rising bond yields would inflate that black hole, by adding to the projected cost of UK borrowing.
FYI, the OBR has a handy ready reckoner to estimate the fiscal impact of higher borrowing costs… 👇
Gilt yields are now about 0.5 percentage points higher than assumed in the March forecast. If sustained, this would add c£6bn to the ‘black hole’.https://t.co/6XbbYJTPDo pic.twitter.com/Sep1KyppjD
— Julian Jessop (@julianHjessop) September 2, 2025
Uk 30-year borrowing costs hits new 27-year high
Britain’s long-term borrowing costs have just hit a new 27-year high, as the pressure on Rachel Reeves refuses to abate.
The yield, or interest rate, on 30-year UK gilts has risen to 5.747% this morning, above the high of 5.723% hit yesterday.
This rise, during a global sell-off of long-dated government debt, continues to highlight the challenge facing the chancellor ahead of the autumn budget.
Ten-year gilt yields, which are more representative of the rate at which the British government now borrows, have risen to their highest since January this morning.
Rising borrowing costs will intensify the pressure on the chancellor to announce spending cuts or tax rises, to satisfy the UK’s fiscal watchdog, the Office for Budget Responsibility, that she is keeping within the fiscal rules.
Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK, says, investors are clearly worried about the long-term trajectory of the UK debt burden.
Pugh fears the UK is close to a ‘debt trap’, but doesn’t believe it will be foreced into an IMF bailout as some have suggested, explaining:
If Chancellor Rachel Reeves is tempted to loosen [the UK fiscal rules] in the Autumn Budget in a way that raises the UK’s debt trajectory, then financial markets are likely to push gilt yields even higher, further increasing the interest-rate bill.
“This is increasingly important because the UK is arguably close to a debt trap. That happens when the interest rate on a country’s debt is higher than its nominal growth rate. The result is that the debt pile grows faster than the economy. If that happens, then the debt-to-GDP ratio grows every year, even if borrowing doesn’t increase, making it extremely hard to escape without painful measures.
“The cash size of the UK economy is likely to grow by 3.5–4% a year (1.5% real growth, plus 2.5% inflation), over the next few years. But, the average interest rate on UK government debt is about 3.9%. This leaves very little room for error.
“That said, warnings of a 1970s-style economic crash and a trip to the International Monetary Fund (IMF) are overdone.
The UK’s recent tax rises mean that the debt-to-GDP ratio is likely to stabilise over the rest of the decade rather than continue to rise. What’s more, inflation and interest rates will probably fall a little further next year, helping to ease the burden. In any case, the UK has the second-lowest debt-to-GDP ratio in the G7, so there is room for it to rise further if needs be in the short-term.
Gold at new record high
The gold price has climbed to a new record high today, as investors seek out a safe haven.
The spot price of gold has hit $3,546.99 per ounce, on track for its seventh daily rise in a row.
Gold’s role as a hedge against inflation and fiscal concerns “remains firmly in play”, says Jim Reid, market strategist at Deutsche Bank.
Bad day on Australia’s stock market
Australia’s stock market has suffered its biggest one-day drop since April today, as the bond sell-off rattles traders.
The S&P/ASX share index has fallen by 1.8% today, to its lowest level since early August, despite new data showing Australia’s economy grew faster than expected in the second qwuarter of the year.
Kyle Rodda, senior financial market analyst at Capital.com, argues that the markets were due a pull back:
Seasonality has entered the narrative: for US equities, September is the worst month of the year for the S&P 500, with an average drawdown of nearly 2% over the past 10 years.
But from an Australian and fundamental standpoint, valuations have been eye-watering and far beyond what could be justified by the earnings that were served up by companies last month. On top of that, higher global bond yields are putting the squeeze on global equity prices.
Yields are being driven by a combination of factors: political risk in the US and Europe, loose and arguably unsustainable fiscal settings across several major sovereigns, and upside risks to inflation in the States as traders price-in the risk of a US Fed being stacked with Trump-loyal policy doves.
Shifting rate expectations in Australia probably also contributed to the ASX200’s sell-off. Australian GDP data was stronger than expected, with annual growth rising 1.8% in the June quarter.
Pound under more pressure
The pound is dropping in early trading, adding to sharp losses yesterday.
Sterling has dropped by a quarter of a cent to $1.3366, close to the one-month low touched on Tuesday.
Yesterday the pound lost one and a half cents, its biggest daily drop since April, as the drop in government bond prices rocked the markets.
Introduction: Global bond sell-off hits Japan
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The global sell-off in longer-term government debt is continuing, as concerns mount over fiscal sustainability and the health of the global economy.
After losses across the bond and equity markets yesterday, there are fresh falls in Asia-Pacific markets today.
Japan is now in the firing line from bond vigilantes, who are driving up borrowing costs (yields) by selling government debt, pushing down prices.
The 30-year Japanese government bond yield has hit an unprecedented 3.255% today, Reuters reports, following the jump in UK, US and eurozone bond yields on Tuesday
Yields on Japan’s 20-year government bonds rose to levels last seen in 1999.
Bond yields especially on super-long-dated 30-year tenors have been soaring around the world, with investors anxious about the scale of debt in countries from Japan to the US. The 30-yr JGB yield hit an unprecedented 3.255%, ffg a run-up in similarly dated gilts and Treasuries https://t.co/LpbRqlDnSN pic.twitter.com/H8MrsBTbAF
— Kong Kong Kubs (@3benson) September 3, 2025
The sell-off appears to be being driven by several factors, including concerns over rising government debt levels, opposition to measures to cut borrowing, sticky inflation, and economic growth prospects.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Investors are demanding higher returns to hold bonds exposed to both inflation risk and elevated debt levels. Higher yields, in turn, push up borrowing costs for companies and weigh on valuations.
As a result, equities and corporate bonds also kicked off the week on a weak note.
Bond investors will be watching London and Paris closely today.
Rising bond yields are a political headache for Rachel Reeves, as it eats into the UK chancellor’s headroom to have debt falling in five years’ time. It could force Reeves into further tax rises, despite concerns that this would weaken growth, or spending cuts, despite opposition from her own party.
The potential collapse of the French government next week, in a row over proposed spending cuts, are also worrying investors.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains:
The French Prime Minister François Bayrou will lose on Monday 8 September a gamble that he was never likely to win and will almost certainly be ejected from office by a parliamentary confidence vote of his own choosing;
President Emmanuel Macron has ruled out a new legislative election—for the time being—and will appoint his fifth Prime Minister in 21 months, almost certainly from within his center and center-right coalition.
The new PM will be obliged to make concessions on Bayrou’s ambitious plans to cut 0.8% of GDP (nominally €43.8bn) from France’s deficit next year.
The agenda
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9am BST: Eurozone service sector PMI for August
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9.15am BST: Bank of England deputy governor Sarah Breeden keynote speech at a conference on innovation in money and payments conference
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9.30am BST: Eurozone service sector PMI for August
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2.30pm BST: Treasury Committee hearing with Bank of England policymakers
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3pm BST: JOLTS survey of the US jobs market
