30-year gilt yields hit their highest level since early 1998 on Tuesday, raising the prospect that Chancellor John Healey’s fiscal headroom could be nearly halved before he has delivered a single budget.
The yield on 30-year UK government bonds touched 5.89% during London trading, according to the snippet’s market data. Bloomberg reported an intraday peak of 5.78%, described as the highest since 1998; the two figures reflect different intraday snapshots, with the snippet’s 5.89% representing the session high. By the close, 30-year yields had eased to 5.85%, while 10-year yields settled at 5.21%, still their highest since the 2008 financial crisis.
The numbers matter because, as CNBC noted, the UK already carries the highest borrowing costs of any G7 nation on 30-year debt. A sustained rise directly inflates the cost of servicing the national debt, and the Office for Budget Responsibility feeds market gilt yields into its fiscal forecasts.
What 30-Year Gilt Yields Mean for the October Budget
Deutsche Bank’s chief UK economist, Sanjay Raja, has put a number on it. Based on Tuesday’s yields, Healey’s headroom against the current budget rule falls from £26bn, the figure left by Rachel Reeves’s spring forecast, to £13.8bn, before accounting for any new spending commitments. Almost all of that deterioration comes from higher government interest costs.
That £13.8bn is not a comfortable margin. Raja suggested Healey would need to maintain at least £10bn to reassure markets of the government’s commitment to balancing day-to-day spending with receipts. ‘To me £10bn is the floor,’ he said. ‘In a perfect world you would want to keep 15.’
The OBR’s March 2025 Economic and Fiscal Outlook had already warned of the direction of travel. Higher forecast Bank Rate, gilt yields, and RPI inflation together raised projected debt interest costs by amounts rising to £10.1 billion in 2029-30 relative to the October 2024 forecast, with borrowing running £13.1 billion higher in that year before new policies. The March forecast assumed an average 10-year gilt yield of 4.8% across the forecast period, 0.4 percentage points above the October 2024 projection. Current market levels are well clear of that assumption.
The OBR takes market expectations of future gilt yields during a confidential two-week reference window into account when building its budget projections. Raja, judging by the timing of previous years, believes the current turbulence may well fall inside that window for the 28 October budget.
A Global Storm With a Domestic Dimension
The sell-off is not a UK story alone. Japanese 10-year yields hit their highest level since the 1990s as investors bet the Bank of Japan would need to raise rates to contain inflation. Oil prices added to the pressure, rising 1.7% to $92 on renewed tensions between the US and Iran, driving inflation expectations higher.
US fiscal fears compounded the picture. Bond investors have grown increasingly nervous about the trajectory of American deficits as the Trump administration’s tax cuts collide with the partial loss of tariff revenues.
The proximate trigger for the repricing of US rates was a speech by Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium on 28 August 2026. He stated: ‘We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.’ He attributed ’65 months of sustained, elevated inflation’ to the central bank. Markets, already pricing roughly a one-in-three chance of a September rate rise before that speech, subsequently moved to a 70% probability.
That repricing proved prescient. On 16 September 2026, the Federal Open Market Committee raised the federal funds rate by a quarter point to a target range of 3¾ to 4%, its first increase since 2023, with the median FOMC projection placing PCE inflation at 3.7% for 2026. At the time of the Jackson Hole speech, consumer prices had risen 3.4% over the twelve months to July, with the Fed’s preferred PCE measure at 3.7%, according to NPR.
Neil Shearing, chief economist at Capital Economics, described the combination as ‘a perfect storm for the bond markets: we’ve had these fiscal concerns that have pushed up the long end of the curve, and now that’s being compounded by upward energy price pressure, pushing up interest rate expectations in the short term.’
Raja acknowledged there is a domestic element too. Higher-than-expected UK growth in the first half of the year has contributed to rising yields. ‘There are some good reasons,’ he said.
For context on the historical benchmark: Reuters noted that the UK Debt Management Office’s first 30-year gilt auction in May 1998 cleared at 5.790%, the reference point against which this week’s yields are being measured. UK 30-year yields are currently running around 0.3 percentage points above equivalent US Treasury yields, broadly in line with their average over the past two years.
The OBR’s reference window for the October budget is the variable Healey cannot control. If the current level of 30-year gilt yields is captured inside it, the arithmetic points to headroom that is uncomfortably close to Raja’s declared floor, before a single new spending commitment is made.
