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UK 10-year gilt yield nears 19-year high ahead of next budget
The rise toward 5.38% is expected to reduce fiscal headroom and, via higher rates, lift borrowing and potential mortgage costs.
A global sell-off in government bonds has pushed UK borrowing costs higher ahead of the next budget, with the yield on 10-year gilts rising to 5.38% by mid-morning Thursday, approaching a 19-year high set last week, according to the Guardian Economics.
The outlet reports that higher yields raise the upfront cost of government investment and feed into Office for Budget Responsibility projections on whether the chancellor can meet Labour’s fiscal rules. Analysts cited by the outlet say the recent jump in yields has wiped out more than half of the 24 billion pounds of “headroom” built by the previous chancellor at the March spring statement, leaving a smaller buffer expected under John Healey’s budget.
The Guardian Economics also links the bond-market pressure to investors pulling back from bonds as fears grow over higher inflation and interest rates, partly tied to the conflict in the Middle East.
In a Thursday speech, the Guardian Economics reports that Bank of England chief economist Clare Lombardelli warned that if oil prices stay elevated for longer, it increases the risk that inflation dynamics adjust, making further UK rate rises more likely, which would raise costs for homeowners even as the government has promised consumers a “breathing space” against living costs.