{"id":375437,"date":"2025-08-26T17:03:10","date_gmt":"2025-08-26T17:03:10","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/375437\/"},"modified":"2025-08-26T17:03:10","modified_gmt":"2025-08-26T17:03:10","slug":"more-pain-for-reeves-as-cost-of-government-borrowing-nears-27-year-high-government-borrowing","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/375437\/","title":{"rendered":"More pain for Reeves as cost of government borrowing nears 27-year high | Government borrowing"},"content":{"rendered":"

The cost of UK government borrowing has jumped to near a 27-year high, piling pressure on Rachel Reeves<\/a> to reveal how she will tackle the deficit in the public finances ahead of the autumn budget.<\/p>\n

The yield, or interest rate, on the UK\u2019s 30-year bond rose by eight basis points (0.08 of a percentage point) on Tuesday to 5.62%.<\/p>\n

That pushed the UK\u2019s long-term borrowing costs close to a spike in April of 5.66%, when 30-year bond yields reached their highest since 1998.<\/p>\n

UK borrowing costs have risen sharply in recent months, increasing the cost of financing UK government debt to more than \u00a3100bn a year \u2013 almost 10% of the annual budget.<\/p>\n

Economists have said the UK faces a unique strain on its financial position at a time when higher welfare and healthcare costs and rapid ageing are driving up the level of borrowing across most industrialised nations.<\/p>\n

Reeves is expected to be faced with a budget deficit of between \u00a320bn and \u00a340bn<\/a> when she delivers the autumn budget.<\/p>\n

To maintain her fiscal rules and maintain the \u00a310bn buffer in place under current plans, the chancellor will need to find between \u00a330bn and \u00a350bn in either extra tax cuts, reduced spending or higher borrowing.<\/p>\n

Higher borrowing bills and u-turns on proposed welfare cuts have heightened the expectation of increases in taxes later this year.<\/p>\n

Investors also fear the UK is suffering from high inflation that will persist for several years, devaluing their UK funds.<\/p>\n

Catherine Mann, a member of the Bank of England\u2019s interest rate-setting committee, said UK policymakers were underestimating \u201cinflation persistence\u201d.<\/p>\n

She said: \u201cThere is an increasing tension between inflation persistence and weak growth \u2013 the trade-off that we currently face in the United Kingdom.\u201d<\/p>\n

She said the Bank needed to maintain high interest rates to bring down inflation and then cut aggressively to revive the economy.<\/p>\n

Mohamed El-Erian, president of Queens\u2019 College, Cambridge, and economic adviser to Allianz, said the UK had fewer domestic and external shock absorbers to relieve both immediate and longer-term structural challenges.<\/p>\n

\u201cFor example, it lacks the highly dynamic and innovative private sector that the US has and, compared to France, has fewer external safety nets, such as the [vast resources of] European Central Bank,\u201d he told the Guardian.<\/p>\n

El-Erian added: \u201cThe core of the UK\u2019s problem lies in stagnant productivity. Over the past fifteen years, productivity growth has averaged a quarter of the annual average of prior decades. This has created a long-term drag on growth, and its continued absence will put even greater immediate and longer-term structural pressures on the economy.\u201d<\/p>\n

Jagjit Chadha, an economics professor at the University of Cambridge, said the situation was \u201cdire\u201d and Reeves need to \u201cget a grip\u201d on the government\u2019s finances.<\/p>\n

Chadha, a former head of the National Institute of Economic and Social Research, a thinktank, said the government had found itself in a vulnerable situation, and a global economic shock could force the UK to seek a bailout from the International Monetary Fund.<\/p>\n

\u201cThe backdrop is a lack of control over public debt, high debt service costs because our borrowing rates are high and a dwindling demand to lend to the UK,\u201d he said. \u201cThis would be most likely manifest as a failure in a debt management office (DMO) auction and a freezing of our debt markets.<\/p>\n

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\u201cWe are vulnerable to a global interest rate shock or a collapse in confidence in the government, which would leave our fragile position exposed. Our political masters have time and time again shown an unwillingness to raise taxes and lower expenditure so the markets are increasingly incredulous.<\/p>\n

\u201cMy point is that we are now very vulnerable to a bad draw.\u201d<\/p>\n

The Treasury is expected to auction about \u00a3300bn of debt in this financial year. A DMO auction is due to go ahead on Wednesday to raise \u00a35bn.<\/p>\n

Charlie Bean, a former Bank of England deputy governor, said: \u201cThe fiscal position is not good, though talk of a \u00a350bn hole and the imminent need for an IMF bailout is over the top.<\/p>\n

\u201cBut the chancellor certainly made a rod for her own back when she committed herself both to not raising any of the main tax rates (and thus forcing herself to raise revenue in more harmful ways) and also chose to run the public finances with a minuscule buffer of just \u00a310bn.\u201d<\/p>\n

He said Labour backbenchers had made the situation worse \u201cby rendering it all but impossible to cut spending in any meaningful way\u201d.<\/p>\n

Bean said the government needed to raise income tax \u201cor, better, get rid of the age ceiling on employee national insurance and integrate it with income tax so that the burden falls more on the better-off oldies like me.<\/p>\n

\u201cDoing so would show that she had seized the initiative and would probably be rewarded positively for doing so by the markets.\u201d<\/p>\n

In 2022, ahead of Liz Truss\u2019s election as Tory leader and prime minister, the yield on 30-year bonds sold by the UK government was about 2.4%.<\/p>\n

After the mini-budget that Truss orchestrated with her chancellor, Kwasi Kwarteng, the 30-year bond yield jumped to 5%, before falling back to about 3.5% after many of the mini-budget measures were reversed<\/a>.<\/p>\n

By Labour\u2019s election victory last July, the 30-year bond yield had risen back over 4.5%, and has climbed since, remaining above 5% since January.<\/p>\n","protected":false},"excerpt":{"rendered":"The cost of UK government borrowing has jumped to near a 27-year high, piling pressure on Rachel Reeves…\n","protected":false},"author":2,"featured_media":375438,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[748,393,4884,12,1144,712,16,15,1764],"class_list":{"0":"post-375437","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news","8":"tag-britain","9":"tag-england","10":"tag-great-britain","11":"tag-news","12":"tag-northern-ireland","13":"tag-scotland","14":"tag-uk","15":"tag-united-kingdom","16":"tag-wales"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115096151939982764","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/375437","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=375437"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/375437\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/375438"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=375437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=375437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=375437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}