UK government borrowing costs hover near 16-year high

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

UK government borrowing costs edged higher on Friday but remained below Thursday’s peak as investors await a key US jobs report later in the day.

The 10-year gilt yield rose by 0.03 percentage points to 4.84 per cent but was still below the 4.93 per cent level touched on Thursday, which was the highest since 2008. Yields move inversely to prices.

Sterling edged lower against the dollar, falling 0.2 per cent to $1.229.

Gilts have suffered in recent sessions amid a global rise in government bond yields driven by sticky inflation in some big economies.

Analysts said closely watched US jobs data for December, due later on Friday, would help drive the direction of bond yields, including gilts.

The UK has been hit particularly hard by the global sell-off as investors worry about the government’s heavy borrowing needs and the growing threat of stagflation, which combines anaemic growth with persistent price pressures.

The credibility of the government’s economic plans are vulnerable to strains in the bond market after chancellor Rachel Reeves left herself just £9.9bn of headroom against her revised fiscal rules in last year’s autumn Budget.

Increases in gilt yields have since put that budgetary wriggle room under threat. The level of bond yields is an important determinant of the budget headroom, given its implications for the government’s interest bill, which exceeds £100bn a year.

Labour has sought to reassure investors this week, with Darren Jones, the number two at the UK Treasury, telling MPs on Thursday that the government was committed to “economic stability and sound public finances”.