Chancellor Rachael Reeves, file Yahoo News UK
The borrowing expenses for the UK government long-term debt have skyrocketed to the highest point in almost 30 years, and this, in turn, has contributed to the increasing pressure on Chancellor Rachel Reeves before her first Budget.
On Tuesday, the interest for 30-year government bonds the amount that investors get when they lend the money to the government , went up to 5.698 per cent.
This is the highest rate since 1998 and indicates that the Treasury will have to pay more as it tries to solve the problem of public finances missing.
The jump happens at a sensitive time for Reeves as she is getting ready to present a Budget later this year and obey the strict rules on borrowing and spending.
Economists are of the opinion that if the debt servicing costs continue to increase, then Reeves will have to usher in tax increases to balance the books.
The response from the markets to the news was immediate. The value of Sterling against the US dollar dropped to $1.3379, having lost more than 1 per cent, ie, it was the lowest point since early August. Some analysts say that the drop in the pound was caused by the worries of investors about the economic outlook in the UK as well as a general change in the global markets.
Britain is not the only one dealing with the problem of rising debt costs. The 30-year German, French, and Dutch government bond yields have also reached their highest levels since 2011.
Experts link the upward trend with the combination of the global factors of the current unstable geopolitical situation, the uncertainty over President Donald Trump’s trade policies in the US, and the political unrest in Europe, where the French government is facing a vote of confidence anytime now.
As it is, the increase in yields puts the chancellor in a position where she has to decide whether it is going to be possible for her to carry on with her plan of achieving fiscal discipline and at the same time, support the public services and invest in infrastructure by which she has always been committed.
The days of Reynolds coming out with her economic strategy under the spotlight will be the days when the borrowing costs are at the levels which have not been seen since the late 1990s.