By James Caley
UK government borrowing costs surged to their highest level in nearly three decades today, with the yield on 30-year gilts climbing to 5.723%. The move marks a 27-year high and reflects deepening investor unease over the sustainability of public finances ahead of the Autumn Budget. Concerns about persistent inflation, rising debt, and questions over fiscal credibility under Chancellor Reeves have been amplified by recent political uncertainty, prompting a sharp reassessment in bond markets.
The impact was felt immediately by the markets, where Sterling came under heavy pressure. Against the US Dollar, the Pound dropped around 2 cents yesterday between 7am and midday, marking its weakest point since the start of the month. Losses were also recorded against the Euro, where Sterling slipped by around 0.7%. This decline highlights the market’s diminishing confidence in UK assets despite the higher returns now offered by gilts.
Sterling’s weakness extended beyond its major European and US counterparts. Declines were seen in GBPAUD, GBPCAD, GBPAED, and GBPNZD, reflecting a generalised retreat from Sterling across the board. The moves underline how concerns over UK fiscal credibility are prompting investors to favour currencies tied to more stable or growth-linked outlooks.
Meanwhile, the Euro also faced selling pressure, with EURUSD edging lower. The move was driven less by Eurozone fundamentals and more by renewed strength in the US Dollar, as investors sought the relative safety of US assets amid global volatility. The Dollar benefited from some positive sentiment with expectations that US monetary policy may remain tighter for longer, putting both Sterling and the Euro on the back foot against the Greenback.
Equity markets also reflected the heightened anxiety. The FTSE 100 edged down by 0.3%, while the more domestically focused FTSE 250 fell by 1.4%, reaching its lowest level in two months. Rate-sensitive sectors such as banks, utilities, and real estate bore the brunt of the sell-off as investors adjusted to the prospect of tighter financial conditions. Overall, the combination of rising borrowing costs and a weakening currency underscores the fragility of the UK’s fiscal position. For now, markets will be watching closely for signals from the Treasury, with the credibility of the Autumn Budget likely to prove decisive in shaping investor sentiment and hopefully stabilising Sterling.