UK 30-year gilt yield hits 5.89%, highest since 1998, ahead of Burnham's first Budget

The yield on 30-year UK government bonds rose to 5.89% on Tuesday, the highest level since 1998, according to the BBC and The Guardian. The increase, which came as London markets caught up with a global bond sell-off, pushed the benchmark 10-year gilt to around 5.22%, its highest since the 2008 financial crisis. Yields eased slightly later in the day to 5.85% for the 30-year and 5.21% for the 10-year, but remained well above the levels assumed in the Office for Budget Responsibility's March forecast.

Raja suggested Healey would try to keep at least £10bn of headroom to reassure markets. "£10bn to me is the floor. In a perfect world you would want to keep 15," he told The Guardian. The sell-off was driven primarily by international factors, including a surge in Japanese yields to their highest since the 1990s, higher oil prices after renewed US-Iran hostilities, and concerns about US deficits.

Neil Shearing, chief economist at Capital Economics, described it as "a perfect storm for the bond markets". Karen Ward, JP Morgan's chief market strategist for Europe, said governments are also competing with technology companies borrowing to fund AI investment. Prime Minister Andy Burnham told the House of Commons on Tuesday that fiscal responsibility would be the "bedrock" of his government, and that the economy and cost of living were "the biggest issues facing the country".

But Conservative leader Kemi Badenoch accused him of "living in the past" and said his theory of growth was "completely wrong". Lord Jim O'Neill, Burnham's former economic adviser, told BBC News the high borrowing costs would force Labour to "get real" about the state pension triple lock and "excessive" welfare spending. The mortgage trade publication Mortgage Professional America reported that lenders lean heavily on gilt and swap movements when setting fixed rates, and that a move of this size tends to filter through to mortgage pricing within days.

Nicholas Mendes, mortgage technical manager at broker John Charcol, said lenders are likely to keep repricing in advance if markets continue to price in higher Bank of England rates. The move has immediate consequences for Chancellor John Healey, who will deliver his first Budget on 28 October. The jump in gilt yields is already feeding into expectations for mortgage rates.