UK government borrowing costs climbed higher on Wednesday after the early release of the Office for Budget Responsibility (OBR) budget forecasts, with long-dated gilt yields under pressure.

Yields on 30-year UK government bonds, which are also known as gilts, jumped as much as seven basis points higher to 5.39%, and 10-year bonds rose three basis points to 4.53%.

The yield moves counter to the price of bonds, meaning that prices fall when yields rise. When the government spends more than it receives in taxes, it borrows money from bond investors to make up the difference.

It comes as OBR documents accidentally released ahead of the budget showed debt is set to rise from 95% of gross domestic product (GDP) this year to 96.1% by the end of the decade.

“GDP is forecast to grow by 1.5% on average over the forecast, 0.3 percentage points slower than we projected in March,” it said. It downgraded growth in 2026 from 1.9% to 1.4%, in 2027 from 1.8% to 1.5%, in 2028 from 1.7% to 1.5% and in 2029 from 1.8% to 1.5%.

Read more: Budget LIVE: Reeves freezes income tax thresholds and caps salary sacrifice, OBR reveals

In addition to this the amount of headroom the government has against its borrowing rules will expand to £22bn in five years’ time.

After a sharp increase in government borrowing over the past decade due to a rise in debt interest costs, the aftermath of the Brexit vote and Liz Truss’s mini-budget, how the market reacts is vitally important.

Michiel Tukker and Benjamin Schroeder, ING’s rates strategists, said: “Gilt markets have been quite volatile in the run-up to the budget and more price swings are possible as the details emerge.

“Our baseline is one where the chancellor does deliver the required budget adjustment to meet the fiscal rules and engineer a material fall in the FY2026 deficit, but a sharp rise in yields is possible if either the fiscal consolidation isn’t perceived as sufficient, or if political pressure builds on chancellor Reeves in the aftermath.”

Meanwhile, Kathleen Brooks, research director at brokerage XTB, said: “Ultimately the bond market wants to see cuts in government spending and revenue generators that do not stoke inflation. However, a higher-than-inflation rise in the national living wage, along with large spending increases may leave the bond market disappointed.

“In the lead up to this budget, yields have been falling. In the past week, the UK bond market has been the top performer bar the US, and 10-year gilt yields have fallen by more than 10 bps. However, the bond market is unlikely to tolerate any increase in borrowing in this budget, or any move from the chancellor to distance herself from her own fiscal rules.”

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