UK long-term borrowing costs reach 28-year high

Long-term UK government borrowing costs have surged to their highest levels in decades, with 30-year bond yields hitting a 28-year peak, driven by the Iran war's impact on energy prices and domestic political uncertainty [1]. On Tuesday, the yield on 30-year UK government bonds reached 5.78%, a level not seen since 1998, while the 10-year yield peaked at 5.1%, an 18-year high [1]. The conflict has led to the effective closure of the Strait of Hormuz, disrupting global energy supplies and causing prices to soar [1]. Markets globally have factored in higher inflation and borrowing costs, but the UK's impact has exceeded that of other G7 nations due to its inflation-prone economy and political instability ahead of elections [1]. The Labour Party is expected to lose hundreds of council seats, with widespread speculation about leadership challenges adding to market jitters [1]. Rising yields strain Chancellor Rachel Reeves' budget rules, which aim to stop borrowing for day-to-day spending and reduce government debt as a share of national income [1]. UK government borrowing fell to a three-year low of £132bn for the year to March, but analysts expect it to worsen if inflation picks up [1]. The 30-year gilt is a niche product, historically bought by pension funds, with no active auctions currently scheduled by the Debt Management Office (DMO) [1]. Bank of England Governor Andrew Bailey downplayed concerns, pointing to the stable pound as evidence the UK is not uniquely affected [1]. He stated, 'If you look at day to day... what's moving the market - in this respect, it's all to do with the conflict… also because what gets said about the conflict' [1].