The U.K.’s 30-year borrowing costs touched their highest since 1998 as sticky inflation and a struggling economy saw investors baulk at buying long-term government debt.
The yield on the 30-year gilt hit 5.22% on Tuesday, the steepest in 26 years, after the U.K. Treasury auctioned £2.25bn worth of bonds maturing in 2054 at a yield of 5.20%, the highest this century.
U.K. bond yields have been climbing with their U.S. peers in recent months amid evidence that inflationary pressures remain stubborn and may be exacerbated by President-elect Donald Trump’s tariff strategy lifting prices of goods. U.K. annual consumer price inflation accelerated to 2.6% in November, up from 2.3% the previous month, and above the Bank of England’s 2% target.
However, whereas the the U.S. economy remains in decent fettle, the U.K.’s is struggling, with the Bank of England forecasting zero growth in the last quarter of 2024.
This stagflationary landscape is discouraging buyers of longer-duration U.K. debt, an acute problem given the government intends to sell £297 billion of bonds this fiscal year, which is the second-highest on record.