The UK government is in danger of missing its own Budget borrowing targets as interest rates for UK long-term borrowing rose to the highest it’s been this century, according to economists. Due to rising borrowing rates, it is expected that the official forecaster, the Office for Budget Responsibility, will begin updating its forecast next month, to present to parliament at the end of March. “There is a significant chance that the OBR will judge that the Chancellor, Rachel Reeves, is on course to miss her main fiscal rule,” warns Ruth Gregory from Capital Economics. The yield on the 30-year gilt has already reached 5.25%, surpassing a previous high in October 2023.
To make up the shortfall between what it receives in tax and what it spends, the UK government borrows money, which it has to repay along with interest. One way it can borrow money is by selling financial products known as bonds which involve a promise to pay the sum back in the future and usually require regular interest payments. UK government bonds, known as “gilts,” are usually considered very safe with minimal risk of money not being repaid. Financial institutions in the UK and abroad – including pension and investment funds, banks and insurance companies – mainly buy them.
However, the rising cost of borrowing will require servicing the current national debt in the UK to swallow 7% of total public spending, which was originally forecast based on lower government borrowing rates. Furthermore, the UK’s issues may be compounded as markets around the world are said to be “raising their eyebrows” about debts, especially the levels of bonds being issued from the US and UK, and the probability of inflation staying above target rates
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