UK Government borrowing costs have climbed to their highest levels in decades, adding pressure on the public finances ahead of the Autumn Budget on 28 October.

The yield on 30-year Government bonds, known as gilts, rose to 5.89% on 1 September, its highest level since 1998. The yield on 10-year gilts also increased to 5.22%, the highest since June 2008.

A gilt yield reflects the return investors demand for lending money to the Government. When yields rise, new Government borrowing becomes more expensive and the cost of servicing some existing debt can also increase.

The rise is not limited to the UK. Borrowing costs have also increased in the US, Japan and parts of Europe, with markets responding to concerns about inflation, Government debt and the prospect of interest rates remaining higher for longer.

For the UK Government, higher borrowing costs could reduce the financial headroom available under its fiscal rules. This may make decisions on tax and public spending more difficult when Chancellor John Healey delivers his first Budget.

Higher Government bond yields can also affect households and businesses because they may feed through into wider borrowing costs, including some mortgage and business lending rates.

The Office for Budget Responsibility is due to publish updated economic and fiscal forecasts alongside the Budget.

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