BackECONOMY
UK long-term borrowing costs reach 28-year high
Long-term UK borrowing costs rose to their highest level since 1998 as the Iran war intensifies and political uncertainty grows ahead of local and national elections. Yields on the 30-year gilt climbed to about 5.78% and the 10-year to around 5.1%, with markets pricing in higher inflation and debt costs. The jump adds pressure on fiscal policy and debt-servicing costs amid election-related jitters.
Why It Matters
Higher borrowing costs increase the expense of government debt and can limit fiscal policy options. They also contribute to market volatility around elections, affecting spending power and budget planning.
Timeline
15 Events
Markets watch Gulf developments and ballot boxes
May 5, 2026
Markets are watching events in the Gulf along with British ballot boxes, creating a delicate time for UK government debt.
Sterling stability and wider market focus
May 5, 2026
The sterling exchange rate has moved little, trading around the upper end of its Brexit-era range as markets monitor Gulf developments and British ballots.
Yields on shorter maturities remain elevated
May 5, 2026
Two-year and five-year gilt yields remain elevated but below their 2023 peaks.
DMO auctions and 30-year gilt context
May 5, 2026
There are currently no active auctions at the 30-year term scheduled by the DMO, reflecting its changed remit; the 30-year gilt does not directly influence common fixed mortgage rates in the UK.
Higher yields and budget constraints on Reeves
May 5, 2026
Rising yields are seen to raise debt interest costs and constrain Chancellor Rachel Reeves's spending power as she works to meet budget rules, including not borrowing to fund day-to-day spending and ensuring debt falls as a share of national income.
Leadership challenges speculation
May 5, 2026
There was widespread speculation about possible leadership challenges.
Labour forecast ahead of elections
May 5, 2026
The Labour Party is expected to lose hundreds of council seats and face challenging national elections in Scotland and Wales.
Markets price in higher inflation and election-related uncertainty
May 5, 2026
Rising yields reflect market expectations of higher inflation and borrowing costs, contributing to a global bond-market rollercoaster and a sharper UK reaction due to the economy's inflation sensitivity and upcoming elections.
30-year and 10-year gilt yields hit multi-decade highs
May 5, 2026
The 30-year UK bond yield peaked at around 5.78% and the 10-year yield peaked at around 5.1%, marking 28- and 18-year highs respectively.
Iran conflict and Strait of Hormuz impact energy prices
May 5, 2026
The Iran war has led to the effective closure of the Strait of Hormuz, impacting the world's supplies of oil and liquid natural gas and causing energy prices to rise.
Bond-market jitters over Hormuz closure over weekend
May 4, 2026
Over the weekend bond markets went further in the wrong direction, reflecting assumptions of a prolonged blockage of the Strait of Hormuz.
Leadership speculation over the weekend
May 4, 2026
Over the weekend there was widespread speculation about possible leadership challenges within the governing party.
Government points to early-year improvements
April 2026
The government pointed to an improvement in growth, inflation and borrowing figures earlier this year, before the onset of the war in Iran.
Borrowing falls to £132bn in year to March
March 2026
UK government borrowing fell to £132bn in the year to March, a three-year low, though analysts expect borrowing to worsen through the year if inflation picks up.
DMO remit change at Budget
March 2025
The Debt Management Office changed its remit for sales of government debt at last year's Budget to be less reliant on 30-year gilts, and there are currently no active auctions scheduled for this term by the DMO.