Britain’s borrowing costs are rising faster than any other G7 country, with long-term debt yields hitting their highest level in nearly three decades amid investor unease over Labour’s economic strategy.
The yield on 30-year gilts — the return investors demand for lending to the UK government — climbed to 5.64% on Monday, a level not seen since 1998. The surge followed a reshuffle of Sir Keir Starmer’s senior economic team, which brought advocates of wealth taxation into the heart of Downing Street.
The Prime Minister appointed Darren Jones, previously deputy to Chancellor Rachel Reeves, as Chief Secretary to the Treasury. He also drafted in Baroness Shafik, a former deputy governor of the Bank of England, as chief economic adviser. Shafik has previously argued for higher taxes on inheritance, land and property.
Meanwhile, James Murray, the Treasury minister, will replace Jones, while Dan Tomlinson — another Resolution Foundation alumnus — steps in as Exchequer Secretary. Tomlinson has co-authored reports calling wealth “relatively under-taxed” and argued that continuing to raise taxes on earnings while shielding capital is “indefensible”.
The moves come as Reeves faces the challenge of filling a £50bn fiscal gap ahead of her autumn Budget. Analysts say markets are worried that Labour lacks a credible plan to get public finances under control.
Simon French, chief UK economist at Panmure Liberum, said: “The immediate market reaction is not exactly a vote of confidence on these moves. Yields were pushed higher as investors also prepared for the Treasury to issue more debt.”
The rise in UK yields is part of a wider global trend. Donald Trump’s tax-cutting bill in the US and his attacks on Federal Reserve independence have unsettled bond markets, while political instability in France has further fuelled investor caution.
But analysts say the UK’s weak fiscal position has made it especially vulnerable. James Bilson, bond strategist at Schroders, said: “With the very weak starting point of the UK’s fiscal outlook and the lack of detail about how the Government will sustainably address this, we believe the UK is particularly vulnerable. The fundamental solution remains a credible plan to fix poor public finances and reduce inflation. For now, we are not seeing either.”
James Athey, a bond trader at Marlborough, said Britain’s economic problems were “fairly obvious”:
“The government is too big, the tax share of the economy is too big and yet still not big enough to cover expenses. The economy is weak and unproductive. Investors are demanding a higher risk premium at the long end.”
Pressure on Reeves
The spike in borrowing costs comes as Reeves faces mounting criticism over her tax strategy. Last week she brought in Torsten Bell, former head of the Resolution Foundation, to lead Budget preparations. Bell has long called for “radical incrementalism” — gradually rebalancing the tax system towards wealth rather than earnings.
But the rise in yields — which push up the cost of servicing the UK’s £2.7 trillion national debt — has intensified the pressure on Reeves to deliver a Budget that reassures markets while meeting Labour’s spending pledges.
Opposition parties seized on the turmoil. Sir Mel Stride, the shadow chancellor, said: “This reshuffle is like rearranging the deck chairs on the Titanic. With inflation doubled, borrowing soaring, and £40bn in tax hikes already on the table, Labour’s ship is sinking fast.”
The Treasury insists it remains focused on “growing the economy” while keeping taxes for working people “as low as possible”. But with gilt yields at 27-year highs and investors demanding greater risk premiums, the government has little margin for error.
For businesses and households, the stakes are clear: higher borrowing costs for government translate into higher long-term interest rates across the economy — from mortgages to corporate loans. Unless Reeves can convince markets that her Budget will steady the public finances, Britain risks paying a growing price for investor scepticism.
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UK borrowing costs rise at fastest pace in G7 as bond yields hit 27-year high