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UK government long-term borrowing costs have soared to their highest level since 1998, putting additional strain on the chancellor as she prepares for the Budget. The interest rate on 30-year government bonds, known as the yield, has surged to 5.72%, resulting in increased expenses for the government when borrowing funds. Chancellor Rachel Reeves is now anticipated to raise taxes during the upcoming Budget to adhere to her borrowing and spending regulations in light of growing concerns about the government’s financial stability.
In addition to the escalating borrowing costs in the UK, there has been a simultaneous increase in yields on 30-year bonds in Germany, France, and the Netherlands to their highest levels since 2011. In the United States, 30-year Treasury bond yields have also risen to their peak in over a month. Various factors have contributed to the surge in borrowing costs worldwide, including geopolitical tensions, the trade policies of US President Donald Trump, and an upcoming confidence vote in the French government. Ngozi Okonjo-Iweala, the head of the World Trade Organization, has warned about the unprecedented disruption in global trade rules currently being experienced.
Susannah Streeter, the head of money and markets at Hargreaves Lansdown, highlighted the daunting decisions facing the chancellor ahead of the Budget, emphasizing the significant concerns raised by investors. Labour’s manifesto pledged not to impose taxes on “working people” like income tax, VAT, or national insurance, prompting speculations about the potential tax hikes expected from Reeves in the autumn Budget. The freeze on income tax thresholds, which could be extended beyond 2028, has been proposed as a possible measure, along with the reform of property taxes.
Governments raise funds from investors through bond sales, which represent a loan that will be repaid within an agreed time frame. The escalating yield on 30-year UK government bonds, or gilts, has raised the cost of borrowing due to increased interest payments. Chancellor Reeves has set out stringent fiscal rules, including balancing day-to-day costs with tax income by 2029-30 and reducing debt as a share of national income by the end of the current parliament. With a limited financial cushion and the possibility of tax hikes on the horizon, Reeves faces mounting pressure to address the rising borrowing costs and sustain her fiscal regulations
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