The Financial Times has reported that the yield on 30-year gilts has reached 5.25%—a level unseen since 1998. This spike in borrowing costs poses a significant challenge for Chancellor Rachel Reeves, whose fiscal rules have already left limited room for manoeuvre.

I just heard this reported on the mainstream Times Radio so this bond sell-off is now in the main news and I fear for the bond market in the UK (and globally).

💷 What’s Driving This?
The increase comes amidst a global bond sell-off and investor concerns over the UK’s economic outlook, including:

Stagflation Risks: Persistent inflation combined with slow growth is deterring investment.
Economic Weakness: The UK economy contracted for the second straight month in October and flatlined in Q3.

Policy Impact: Tax hikes and rising labour costs, such as higher National Insurance and the National Living Wage, are weighing on business confidence.

🔍 Why It Matters
Higher borrowing costs amplify the strain on public finances. Reeves’ fiscal rules, designed to limit borrowing for current spending, already leave just £9.9bn of headroom. With sustained yields, economists suggest this could shrink to as little as £1.1bn—forcing difficult choices.

📊 What’s Next?
The Treasury awaits updated forecasts from the Office for Budget Responsibility (OBR) in March. If projections show a breach of fiscal rules, the government may face pressure to tighten spending or introduce new tax measures.

⏳ The Broader Context
These developments come amid global financial uncertainty. The UK is uniquely vulnerable due to its mix of sluggish growth, sticky inflation, and high-volume gilt sales. A “buyer’s strike” on ultra-long-term debt reflects waning investor confidence in the UK market.

🎯 The Takeaway
For businesses and investors, this is a stark reminder of the challenges ahead. Fiscal credibility remains critical, but the margin for error is razor-thin. Reeves’ focus on rooting out waste and growing the economy will need to deliver tangible results to avoid a fiscal credibility crisis.

🌍 Your Perspective?
How do you think the UK should navigate this complex economic environment? Will we see a shift in fiscal policy or a broader market adjustment? Let’s discuss in the comments below. 👇

FT article by Ian Smith and Sam Fleming . Chart from TradingEconomics

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