The pound fell sharply as UK borrowing costs surged to levels not seen in a quarter of a century. Concerns over the country’s rising public debt, coupled with global bond market turbulence, pushed sterling down by as much as 1.5% against the dollar before a slight recovery.
At one point, the yield on the 30-year gilt reached 5.72%, marking the highest among the G7 economies. Analysts warn that persistently high yields could erode Chancellor Rachel Reeves’ limited fiscal flexibility, cutting her room for manoeuvre by more than half compared with the spring.
Some warn the UK is edging closer to financial instability. Former chancellor Ken Clarke even suggested that the risk of a bailout from international lenders could no longer be ruled out. Still, Treasury ministers insisted that the moves in bond markets remain “orderly” and aligned with global trends.
Economists point to a dangerous cycle: higher debt concerns push yields up, worsening debt dynamics and leading to even higher borrowing costs. The recent £14bn sale of 10-year gilts — a record-breaking issuance that drew demand worth over £140bn — highlights both investor appetite and the government’s growing reliance on debt markets.
Similar moves were seen globally, with US Treasury and German Bund yields also climbing, but Britain’s more stubborn inflation is leaving it particularly exposed. Analysts say this has made sterling more sensitive to market jitters than its peers.
Despite the turbulence, Downing Street stressed that fiscal rules remain intact, while Prime Minister Keir Starmer’s reshuffling of his economic team was framed as a bid to reinforce, not weaken, economic leadership.
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