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1h ago

UK Gilt Yields Hit Multi‑Decade Highs as Political Turmoil Adds Risk Premium

Analysts say an energy‑driven inflation shock is the main force behind the jump, with politics adding a smaller premium that tightens the budget outlook.

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Economist and member of the Bank Of England’s Monetary Policy Committee Catherine Mann poses for a photograph ahead of a speech at Manchester Business School in Manchester, Britain, January 12, 2023. REUTERS/Phil Noble/File Photo
Workers walk through the Canary Wharf financial district, ahead of a Bank of England decision on interest rate changes, in London, Britain, August 3, 2023.
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Overview

  • UK government bond yields, which jumped Tuesday to about 5.1% on the 10‑year and 5.8% on the 30‑year, are holding near multi‑decade highs.
  • Oxford Economics says most of the rise since the Iran war reflects higher inflation expectations from the energy shock rather than domestic policy shifts.
  • Political tension has added a premium after roughly 80 Labour MPs urged Keir Starmer to resign, and investors sold gilts and the pound.
  • Higher yields raise debt‑service costs and could cut Chancellor Rachel Reeves’ fiscal headroom by about £6 billion, which may mean tighter public budgets or higher taxes.
  • Bank of England policymaker Catherine Mann warned that heavy foreign ownership can amplify gilt swings, even as big buyers like Standard Life step in to pick up cheaper bonds.