The UK is paying the highest borrowing cost on a debt sale in almost three decades, as a global bond sell-off intensifies pressure on public finances ahead of a crunch Budget. A £4.25bn sale of 30-year debt on Tuesday is being priced at a yield of roughly 5.83 per cent, the highest interest rate on any gilt since the UK Debt Management Office's creation in 1998. The sale crystallises a three-decade high in the UK exchequer's long-dated borrowing costs, after the Iran war and concerns over a global debt glut added to a sharp rise in yields since the Covid-19 pandemic.

While the gilt moves we're seeing can all be tied directly to global markets, it's still a big shift higher in domestic borrowing costs, said Gordon Shannon, a fund manager at Twenty Four Asset Management. It will undoubtedly constrain the government's options in the Budget next month, he added. The record yield on the newly issued debt underscores the pressure on public finances from rising interest costs, which are already running at £110bn a year in the UK and exceed other major areas of government spending.

If debt interest were a government department, it would be the second biggest in Whitehall after health, bigger than defence, the Home Office and justice put together, chancellor John Healey said in a speech on Monday, as he vowed to be honest about the need to control spending at the Budget. Investors said the sale had been received well by the market, attracted by the UK's high yields compared with peers.

The total order book was above £85bn for Tuesday's syndication. The DMO plans to sell £250bn of gilts this year to fund the government's spending plans. The UK's 10-year borrowing costs, which are the more closely watched indicator, are the highest in the G7 at 5.2 per cent. The global bond sell-off has been fuelled by a surge in energy prices since the outbreak of the Iran war that has upended investors' expectations of interest rate cuts from major central banks including the Bank of England.