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\t\tRachel Reeves faces a battle against higher government borrowing costs.\t<\/p>\n\t\t\tMonday 18 August 2025 9:51 am\n\t\t\t<\/p>\n
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\t\tRachel Reeves faces a battle against higher government borrowing costs.\t<\/p>\n
Government borrowing costs have jumped over the past two weeks, flashing warning signs for Chancellor Rachel Reeves.<\/p>\n
The 30-year gilt yield hit 5.57 per cent on Friday before falling back to stick around 5.54 per cent when trading began on Monday.\u00a0<\/p>\n
Gilt yields are higher than levels seen in April after President Trump<\/a> announced sweeping tariffs on \u2018Liberation Day\u2019 when they hit 27-year highs.\u00a0<\/p>\n Ten-year gilt yields have also jumped from around 4.51 per cent at the beginning of the month to as much as 4.7 per cent, although the gilt yields are lower than they were in April and June.\u00a0<\/p>\n Tensions around borrowing costs<\/a> are reflective of a lack of trust in major economies\u2019 ability to pay off debt. The UK, in particular, is in a difficult position. <\/p>\n Traders are pricing in fears of high inflation, which could keep interest rates at higher levels than expected for longer. Spend<\/a>ing choices made by the Chancellor are also reflected in bond yields. <\/p>\n Higher yields have prompted Bank of England policymakers to consider slowing the pace of quantitative tightening (QT) process.<\/p>\n Reeves battles high government borrowing costs <\/p>\n Analysts believe gilt yields remain high due to the Bank of England\u2019s hawkish view<\/a> on the UK economy, with inflation set to hit four per cent in September and further cuts to Bank Rate becoming more \u201cuncertain\u201d after a three-way split on the Monetary Policy Committee.\u00a0<\/p>\n \t\t\t\t\tRead more<\/p>\n \t\t\tStandard Chartered shares struggle to rebound after US lawmaker triggered $3bn sell-off<\/a><\/p>\n \u201cThe spike in European bond yields coincided with the release of the UK labour marke<\/a>t data, which showed stubbornly high wage data and a slowdown in job losses in recent weeks and months,\u201d said Kathleen Brooks, research director at trading platform XTB.<\/p>\n \u201cInterest rate cut expectations for the UK are being scaled back, there is now less than one rate cut getting priced in by the end of the year, and only a 40 per cent chance of a cut priced in for November.\u201d\u00a0<\/p>\n \u201cFor now, UK bonds are taking the brunt of the selling, and Gilt yields are rising faster than yields in Europe and the US. Due to the UK\u2019s weak fiscal position, this is to be expected.\u201d<\/p>\n Rachel Reeves is under pressure from her backbenchers to avoid drastic cuts to government spending<\/a>. <\/p>\n Her fiscal rules and Labour\u2019s manifesto commitments mean she has limited options when it comes to tax hikes, with income tax, national insurance, VAT and corporation tax making up around three-quarters of total revenue.\u00a0<\/p>\n Speculation around the Autumn Budget is heating up, with economists claiming higher borrowing costs will destroy her small \u00a39.9bn headroom.\u00a0<\/p>\n Reeves has said her fiscal rules are \u201cnon-negotiable\u201d and claimed abiding by them<\/a> was essential to keeping the UK economy afloat.\u00a0<\/p>\n \u201cOne in \u00a310 of government spending is spent servicing our debt. I am a Labour politician. I don\u2019t think there\u2019s anything progressive about spending \u00a3100bn a year, often to US hedge funds when I would rather spend that money on our health service or on defence,\u201d she said at a Treasury Committee hearing last month.\u00a0<\/p>\n \t\t\t\t\tRead more<\/p>\n