UK government borrowing costs climbed to their highest level since the 2008 financial crisis, driven by soaring inflation expectations and disappointing public finances data.
Gilt yields surged to 4.94% on Friday, up 0.09 percentage points, as investors demanded higher returns amid concerns about the UK's fiscal health and the Bank of England's shifting policy stance. February's borrowing figure of £14.3bn exceeded forecasts, revealing a worse-than-expected fiscal position even before the full impact of the energy price shock hit. This comes as rising oil and gas prices from the Middle East conflict have pushed inflation expectations higher, forcing markets to price in potential Bank of England rate hikes instead of cuts.
Chancellor Rachel Reeves now faces intensified pressure to address the widening deficit, with analysts warning the fiscal challenges could deepen as energy costs continue to bite. The market turmoil underscores the government's struggle to contain borrowing costs amid global inflationary pressures.
Source: Financial Times Markets · Summarized by HeadlinesBriefing