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UK borrowing costs hit 19-year high as gilt yields surge in global bond selloff
Medium-term UK borrowing costs reached a fresh 19-year high on Thursday, with the 10-year gilt yield at 5.515% - the highest since July 2007 - as a global bond selloff driven by inflation fears continued.
By Haut Monde Post
• October 8, 2026
• 3 Min Read
Medium-term UK borrowing costs hit a fresh 19-year high on Thursday as investors continued to offload bonds worldwide on fears of rising inflation.
Yields at levels unseen since 1998
By lunchtime in London, the yield on 10-year UK government bonds had jumped 0.06 percentage points to 5.515%, its highest level since July 2007.
Longer-dated debt moved further still:
- •20-year gilts rose to their highest level since 1998
- •30-year gilts also climbed to levels last seen in that year
Budget arithmetic under strain
The yield surge is squeezing the government's room for manoeuvre ahead of the autumn statement. Economists believe higher borrowing costs and weaker growth have wiped out around half - possibly more - of the £24bn buffer against Labour's fiscal rules that Rachel Reeves built at her March spring statement.
Her successor John Healey presents his first budget as chancellor on 28 October. He is expected to raise taxes to partly rebuild the fiscal cushion and to pay for policies including a six-month VAT cut on electricity bills and a modest energy support package for the poorest households.
How far should the headroom be rebuilt?
Not everyone thinks the full buffer should be restored. Andrew Wishart of Berenberg Bank cautioned against raising taxes beyond what is needed, arguing that simply restoring the surplus to its March size would hurt the economy for little gain.
"Raising taxes to keep the surplus close to the size it was in the March forecast (ie to 'maintain the headroom')"
Wishart also expects gilt yields to come back down over the next year, on his view that the Bank of England is likely to make fewer rate rises than the four that investors currently expect.
A worldwide selloff
The pressure on gilts is part of a broader retreat from government debt. The selloff across big economies has intensified in recent days as oil prices soared with no resolution of the Middle East conflict in sight. France has been hardest hit as Paris battles to pass a budget, but the selloff has been widespread.
Central banks are responding to surging inflation. The Bank of England is widely expected to raise interest rates at its November meeting, echoing moves already made by the European Central Bank, Federal Reserve and Bank of Japan.
Ahead of next week's IMF annual meeting in Bangkok, managing director Kristalina Georgieva urged governments to tighten their belts.
"My message to the world's economic policymakers will be this: we cannot keep delaying necessary policy action"
In the United States, Treasury Secretary Scott Bessent doubled buybacks of US treasuries in August in an effort to rein in long-term yields. The 30-year treasury, at about 5.235% when the move was announced, has since surged above 5.7%.
Attention now turns to Healey's budget on 28 October and the Bank of England's November rate decision.
